VALUE ADDED TAX manufacturers.

Subsequently, if manufacturers
Value-added Tax (VAT)
It is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties or services
in the Philippines and on importation of goods into
the Philippines (RR No. 16-2005, Sec.4.105-2).
Characteristics of Philippine VAT:
1. It is an indirect tax. The amount of tax maybe
shifted or passed on by the seller to the buyer,
transferee or lessee of goods, properties or
services (NIRC, Sec. 105[b]).
Impact of Taxation – on the seller upon whom
the tax has been imposed in first instance
Except in the case of tax-free importation of goods
into the Philippines by persons, entities or
agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in
the Philippines to non-exempt persons or entities,
the purchasers, transferees or recipients shall be
considered the importers thereof, who shall be
liable for any internal revenue tax on such
importation. (NIRC, Sec. 107[B]).
Incidence of Taxation – on the final consumer
who finally bears burden of tax
What is transferred in such instances is not the
liability for the tax, but the tax burden. Stated
differently, a seller who is directly and legally liable
for payment of an indirect tax, such as the VAT on
goods or services is not necessarily the person
who ultimately bears the burden of the same tax. It
is the final purchaser or consumer of such goods
or services who, although not directly and legally
liable for the payment thereof, ultimately bears the
burden of the tax (Contex v. CIR, G.R. No.
151135, July 2, 2004).
Illustration: Tax will be paid to BIR in first
instance by manufacturers of consumer goods.
Impact or liability to pay tax is, therefore, on the
add tax to price, after the goods were further
processed, and afterward sold at higher prices to
the buyers, then, burden of tax is thus shifted to
the buyers.
The shifting of the VAT to the buyer does not make
the person directly liable and therefore, it cannot
invoke its tax exemption privilege under Section 109
[1][R] of the Tax Code of 1997, as amended, to
avoid the passing on or shifting of the VAT (BIR
Ruling No. 170-2013, May 6, 2013).
Note: Once the VAT is shifted to the buyer/customer
as an addition to the cost of goods or services sold,
it is no longer a tax but an additional cost which the
buyer/customer has to pay in order to obtain the
goods or services. The buyer cannot be held directly
liable to pay tax or invoke exemption privilege to
avoid paying the output tax passed on to them by
the vendor, in the form of higher selling price
2. It is a tax on value added of the taxpayer.
Value added – is the value added to the raw
materials or to the purchases, other than the labor
component of the goods or service, by the
producer, before its sale.
Total Sales Pxx.xx
Less: Total Purchases (xx.xx)
= Value Added Pxx.xx
*Assuming both sales and purchases are
subject to VAT in the same taxable quarter.
3. It is a transparent form of sales tax.
VAT is a tax on the taxable sale, barter or
exchange of goods, properties or services. A
barter or exchange has the same tax
consequence as a sale. A sale may be an actual
sale or a deemed sale, or an export sale or a local
sale (MAMALATEO, supra at 316).

EXECUTIVE COMMITTEE SUBJECT COMMITTEE MEMBERS

SYLVESTER AUSTRIA over-all chairperson,
REYNOLD ORSUA chairperson for academics,
JOE VINCENT AGUILA chairperson for hotel
operations, LYNDON RUTOR vice-chairperson
for operations, RODEL JAMES PULMA vice-
chairperson for secretariat, DENISE DIANNE
MAGBUHOS vice-chairperson for finance, IAN
DANIEL GALANG vice-chairperson for
electronic data processing, JOMARC PHILIP
DIMAPILIS vice-chairperson for logistics,
ALBERTO RECALDE JR. vice-chairperson for
membership
MA. EVANOR BONAOBRA subject chair,
MABEL BUTED assistant subject chair, IAN
CALMARES edp, CLAIRE BULIYAT general
principles, CAROLINE CLAIRE BARIC,
ROBERT JAY LIM and NIKKI NAKHISHA
MACALINO income tax, PATRICIA ANNE
SAYO transfer tax, MA. PATRICIA PAULA
GAUNA, value added tax, FLORIAN
SALCEDO nirc remedies, MONIQUE CHU
tax administration and enforcement,
JONATHAN VINARAO real property tax and
local taxation, RICHMOND MONTEVIRGEN
tariff and customs law, IAN DULDULAO
court of tax appeals
Jez Charlemagne Arago, Noreen
Joyce Aquino, Jeana Lyn
Caceres, Paul Vincent Casilla,
Bai Pangandongan Dilangalen,
Clarissa Heromina Esguerra,
Lara Carmela Fernando, Aemie
Mana Jordan, Raynald Lopez,
Ali Loraine Manrique,
Maygenica Mateo, Jona
Christinelli Mendoza, Henson
Macayanan Montalvo, Derek
Odosis, Krizia Marie Redondo,
Ma. Katrina Roxas, Michelle
Salcedo, Sarah Lou Sulit, Doris
Moriel Tampis, Fenna Marie
Tilos, Wesley Young

Transparent – the law requires that the tax be
shown as a separate item in the VAT invoice or
receipt.
4. It is a broad-based tax on consumption of goods,
properties or service in the Philippines.
Broad based – there is VAT on every stage of the
taxable sales of goods, properties or services
5. It is collected through the tax credit method
(sometimes called as the invoice method).
Tax Credit Method – the input tax shifted by the
seller to the buyer is credited against the buyer’s
output taxes when he in turn sells the taxable
goods, properties or services
6. It does not cascade (tax on tax), hence, there is
no tax pyramiding.
Cascading – Tax passed on by the previous
seller, which is now a component of gross selling
price/receipts of the seller, is again subjected to
tax.
Reason: Because VAT allows a seller to credit his
input tax (which is equivalent to the output tax of
previous seller) from his output tax. Hence, no tax
on tax.
7. It adopts the “tax-inclusive method”.
Unless otherwise stated, any price charged by a
VAT registered person shall be deemed to include
the VAT charged.
8. It follows the Destination Principle/Cross Border
Doctrine.
Destination Principle or Cross Border Doctrine
Goods and services are taxed only in the country
where these are consumed, and in connection
with the said principle, the Cross Border Doctrine
mandates that no VAT shall be imposed to form
part of the cost of the goods destined for
consumption outside the territorial border of the
taxing authority (Atlas Consolidated Mining and
Development Corporation v. Commissioner of
Internal Revenue G.R. Nos. 141104 & 148763.
June 8, 2007).
Exports are zero-rated because these shall be
consumed outside the Philippines, while generally,
imports are subject to regular VAT rate because
they are for consumption in the Philippines.
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Freeport Zones and Economic Zones are
considered as separate customs territories. Sales
by entities registered with these zones are either
treated as sales outside the country (if the
purchaser is also a locator, or if the goods are for
export to a country other than the Philippines) or
domestic sales. If considered as domestic sales,
these sales are importations in the hands of the
purchaser and are thus subject to the
corresponding customs duties and other taxes on
imported products (RR No. 2-2012, February 17,
2012).
In Toshiba Information Equipment (Phils.) Inc., v.
CIR, PEZA-registered enterprises, such as
Toshiba, are VAT-exempt and no VAT can be
passed on to them. PEZA-registered enterprise,
which would necessarily be located within
Ecozones, are VAT-exempt entities, not because
of Sec. 24 of R.A. 7916, as amended, which
imposes the 5% preferential tax rate on gross
income of PEZA-registered enterprises, in lieu of
all taxes; but, rather, because of Sec. 8 of the
same statute which establishes the fiction that
Ecozones are foreign territory. Consistently, under
the Cross Border Doctrine, actual export of
goods and services from the Philippines to a
foreign country must be free of VAT albeit zero
rated; while, those destined for use or
consumption within the Philippines shall be
imposed with 12% VAT (G.R. No. 157594, March
9, 2010).
Advantages of VAT:
1. VAT has a built-in advantage in self-policing
feature and available audit trail.
The VAT is, in principle, described as “self-
policing.” The description stems from the nature
of the invoice-based credit VAT: a taxable
business can claim for the refund of the input VAT
only if the claim is supported by purchase
invoices—the mechanism provides strong
incentives for firms to keep invoices of their
transactions and is an efficient means for tax
authorities to check and cross-check for
enforcement enhancement.
2. VAT covers more transactions in a wider tax base.
VAT is generally more broad-based (it is extended
to cover both goods and services). Every sale of
goods, properties or services at the levels of
manufacturers or producers and distributors is
subject to VAT (MAMALATEO, supra at 317).

3. VAT makes sales tax more equitable.
Exemptions of certain transactions involving
specific categories of goods and services from
VAT (See NIRC, Sec. 109 for exempt
transactions) were made in an attempt to make
the sales tax more equitable.
By exempting certain kind of food and other
necessities from the sales tax, e.g., food items
which are being purchased mostly by workers like,
sardines, canned fish, milk and cooking oil (VAT
Ruling No. 009-07, June 21, 2007), it is argued,
lower-income families are relieved from part of
their tax burden.
4. VAT is neutral in making business decisions.
The cost in a business is ultimately neutral
because if a business receives more output tax
from sales than it pays in input tax on purchases,
the excess output will be paid to the BIR. If more
input tax has been paid than output tax charged, a
refund may be made for the difference. What it
does mean is that a taxpayer can re-claim some
or all of the VAT it paid on goods or services it
used for the business.
PERSONS LIABLE FOR V AT
1. Any person who in the course of trade or
business:
a. Sells, barters, or exchanges goods or properties
(seller or transferor), leases goods or properties
(lessor);
b. Renders services (service provider)
2. Imports goods (importer) – the person who brings
goods into the Philippines, whether or not made in
the course of trade or business (RR No. 16-2005,
Sec. 4.105-1).
In the Course of Trade or Business (Rule of
Regularity)
Regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental
thereto, by any person regardless of whether or not
the person engaged therein is a non-stock, non-
profit private organization (irrespective of the
disposition of its net income and whether or not it
sells exclusively to members or their guests), or
government entity (NIRC, Sec. 105; RR No. 16-
2005, Sec. 4.105-3).
Likewise, transactions incidental to the pursuit of a
commercial or economic activity are considered as
entered into in the course of trade or business and
are also subject to VAT (Kepco Ilijan Corporation v.
CIR, CTA Case No. 8091, October 23, 2012).
Therefore, the sale of a motor vehicle forming part of
the taxpayer’s property and equipment, which is an
incidental transaction made in the course of the
taxpayer’s business, is subject to tax (Mindanao II
Geothermal Partnership v. Commissioner of Internal
Revenue, G.R. No. 193301, March 11, 2013).
Exceptions to the Rule of Regularity:
1. Importation is subject to VAT regardless of
whether or not it is in the course of trade or
business (NIRC, Sec. 107[A]).
Note: The Code provides that there shall be
levied, assessed and collected on every
importation of goods.
2. Services rendered in the Philippines by non-
resident foreign persons shall be considered as
being in the course of trade or business even if the
performance of services is not regular (NIRC, Sec.
105 [d]).
3. Any business where the gross sales or receipt do
not exceed P100,000 during any 12-month period
shall be considered principally for subsistence or
livelihood and not in the course of trade or
business (RMC No.4-98, January 21, 1998).
VAT Person
Refers to any person liable for the payment of VAT,
whether registered or registrable:
1. Any person who engages in transactions subject
to VAT.
2. Importers of goods, whether or not made in the
course of his trade or business (Secs. 106-108,
NIRC),
Illustration:
D’2 Luck Trading is not registered as a VAT
business. During the month, it made an
importation equivalent to P200,000.00. The
importation is intended for the personal use of
Didi, the owner.
In the above case, although the importation is
made by a non-VAT business and even not
intended for use in business and does not meet
the required threshold, the transaction is subject to
VAT.
(also in relation to the Destination Principle)
3. Persons whose annual sales exceed P1,919,500
(previously P1,500,000) (RR No. 16-2011,
effective January 1, 2012).
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Illustration:
V-Go Trading is not registered as VAT business.
During the year, it has a total sales of goods
entered in the normal course of business
amounting to P2,000,000.00.
In this case, V-GO Trading is liable for VAT due to
the fact that its sales exceeded the VAT
registration threshold of P1,919,500,
notwithstanding the fact that it is not a VAT-
registered business.
VAT-Registered Person
VAT person who:
1. Registered in accordance with the law; or
2. Opted to be registered as a VAT person.
Such status shall continue until registration is
cancelled or until the three (3) consecutive years
moratorium had lapsed for a person who opted to
register as a VAT person and thereafter decides to
revert to exempt status (NIRC, Sec 236[H][2]).
VAT-Registrable Person
Persons required to register for Value-Added Tax:
1. 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 for VAT 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
P1,919,500; or
b. There are reasonable grounds to believer that
his gross sales or receipts for the next 12
months, other than those that are exempt under
Section 109[A] to [U], will exceed P1,919,500;
(NIRC, Sec 236 [G][1])
2. Any person who is required to register but failed to
do so. As a form of penalty, he shall not be
entitled to claim any input tax credit, although he is
liable to output tax in his taxable sales. (NIRC,
Sec 236 [G][2])
VAT-Exempt Person
Not liable for the imposition of Output VAT on its
sales, either because his transactions are not
taxable transactions or he is specifically exempt
from VAT by specific provision of the Code or by
special laws.
VAT-exempt person may be exempted from levying
of Output VAT; however he may still be required by
his VAT-registered supplier to pay VAT component
on his purchases.
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2014 CENTRALIZED BAR OPERATIONS
The following persons are VAT-exempt:
1. Persons not engaged in undertaking VAT-taxable
transactions including:
a. Those whose sales or receipts are exempt
under Sec. 109[v] of the NIRC;
b. Those whose annual gross sales or receipt do
not exceed P1,919,500; and
c. Non-stock/ nonprofit organizations.
These are organized primarily for the purpose of
engaging in nontaxable transactions.
If at the same time these entities undertake
taxable transactions but the value of such
transactions does not exceed P1,919,500 per
year, they remain exempt from VAT. They will be
taxed under percentage tax unless they registered
as VAT business.
Illustration:
MC Lakad is a nonprofit entity founded to train and
prepare wheel-chaired persons for skills that will
make them self-supporting. In the course of
training, the products of these beneficiaries are
being sold to public. For the year, the total cash
sales amounted P300,000 which was used to
finance the foundation.
In the above case, the sale of the foundation is
exempt from VAT. The sale will be subject to
percentage tax except when specifically exempted
by the Tax Code or special laws from VAT.
2. Subsistence Livelihood Income
Subsistence livelihood activities are exempt from
VAT or percentage tax and and/or payment of
P500 registration fee.
Any business or businesses pursued by an
individual where the aggregate gross sales or
receipts do not exceed P100,000 during the 12-
month period shall be considered principally for
subsistence or livelihood and not in the course of
business (RMC No.4-98 dated January 21, 1998).
Illustration:
Tina Pay is engaged in the selling of homemade
cakes. Her gross sales for the year 2013 from this
activity amounted to P70,000. How much is the
VAT to be remitted by Tina for her sales?
There is no VAT to be remitted by Tina. Her gross
sales are considered as receipts from livelihood
activity and therefore not subject to VAT.
3. Persons exempt from VAT under Special Laws:
a. CDA-registered cooperatives (R.A. 6938, R.A.
8424);

b. Enterprise registered with Special Economic
Zones or Free Ports in the Philippines;
c. Regional or Area Headquarters established in
the Philippines by multinational corporations
(BIR Ruling 176-88); and
d. Inventors (RR No. 19-93).
4. VAT-Exempt under Treaty
Under the Vienna Convention on Diplomatic
Relations of 1961, diplomatic agents are exempt
from all dues, taxes, personal or real, national,
regional or municipal.
They are, nevertheless, subject to the indirect
taxes of a kind which are normally incorporated in
the price of goods or services (BIR Ruling No.
065-96, June 18,1996).
INPUT TAX AND OUTPUT TAX
Input Tax
The VAT due from or paid by a VAT registered
person in the course of his trade or business on
importation of goods or local purchase of goods, or
services, including lease or use of property, from a
VAT-registered person (NIRC, Sec. 110[A]).
Sources of Input Tax:
1. Passed-on VAT (12%) – VAT paid on:
a. Purchase or importation of goods;
b. Purchase of real properties; and
c. Purchase of services;
2. Transactions Deemed Sale (12%);
3. Presumptive Input Tax (4%);
4. Transitional Input Tax (2% or actual VAT paid);
5. Standard Input Tax (7%);
6. Withholding Input Tax; and
7. Excess Input Tax
Output Tax
The VAT due on the sale or lease of taxable goods
or properties or services by any person registered or
required to register under VAT (NIRC, Sec.
110[A][3][b]).
Sources of Output Tax:
1. Actual Sales
2. Zero-rated Sales
3. Deemed Sales
Transactions of Special VAT Persons
1. Husband and Wife
Husband and wife shall be separate taxpayers for
purposes of the P1,919,500 threshold. However,
the aggregation rule for each taxpayer shall apply
(RR No. 16-2011).
Aggregation Rule
A spouse who derives revenue not only from the
practice of his profession but also from other lines
of trades or businesses, which are likewise subject
to VAT, shall be aggregated for purposes of
determining whether the threshold amount has
been exceeded (RR No. 16-2005, Sec. 4.109-1).
2. Joint Venture
An unincorporated joint venture undertaking
construction or energy-related contractual
activities with the government, although exempt
from income tax, shall be liable to VAT
(MAMALATEO, Value Added Tax, 2007, p.45)
[hereinafter MAMALATEO, VAT].
3. General Professional Partnership (GPP)
A professional may practice profession either
through:
a. His personal capacity; or
b. A GPP.
Rules:
a. An individual who practice profession in his
individual capacity shall pay VAT if his annual
gross receipts exceed P1,919,500; otherwise,
he shall be liable to the three percent (3%)
percentage tax (RR No. 16-2011).
b. An individual who practice through a GPP shall
no longer be liable for VAT on his share of the
partnership profits from the GPP. GPPs whose
gross annual receipts exceed P1,919,500 shall
be liable for VAT (RR No. 16-2011).
Please see discussion on Updates on VAT.
4. Government
a. Performance of essential governmental
functions exempt from VAT
b. Performance of their proprietary functions –
liable to pay VAT
5. Non-Stock, Non-Profit Association
a. Receipts which come purely from association
dues or special assessments from members –
exempt from VAT
b. Once it engages in any taxable sale of goods or
services (i.e., operating a restaurant) – liable to
pay VAT
6. Real Estate Dealer, Developer or Lessor
Sale of real property held primarily for sale or for
lease is subject to VAT only if:
a. Made by a real estate dealer; and
b. The gross selling price exceeds the threshold
prescribed by law (RR No. 16-2011).
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2014 CENTRALIZED BAR OPERATIONS

Real Estate Dealer – includes any person
engaged in the business of buying, developing,
selling, exchanging real properties as principal
and holding himself out as a full or part-time
dealer in real estate (RR No. 16-2005, Sec. 4.106-
3).
Exception: Sale of real property that are
expressly exempted from VAT (See VAT Exempt
Transactions)
Please see Sale of Real Property for the threshold
amounts.
7. Importer
Generally, it is the seller who shall pay the output
tax on his taxable sales. However, in case of
importation, it shall be the importer who shall pay
VAT upon release of the goods from the customs
territory. This is an exception to the general rule
requiring a sale before VAT shall be incurred
(MAMALATEO, VAT, supra at 44).
V AT ON SALE OF GOODS OR
PROPERTIES
Goods or Properties
Means all tangible and intangible objects which are
capable of pecuniary estimation and shall include,
among others: (TEMPR)
1. Radio, television, satellite Transmission and cable
transmission time;
2. The right or privilege to use in the Philippines of
any industrial, commercial, or scientific
Equipment;
3. The right or privilege to use Motion pictures films,
tapes, and discs;
4. The right or privilege to use Patent, copyright,
design or model, plan, secret formula or process,
goodwill, trademark, trade brand, or other like
property or right; and
5. Real properties held primarily for sale to
customers or held for lease in the ordinary course
of trade or business (NIRC, Sec. 106).
Requisites for Taxability of Sale of Goods and
Personal Properties:
1. There is an actual or deemed sale, barter or
exchange of goods or personal properties for a
valuable consideration;
2. The sale is in the course of trade or business or
exercise of profession in the Philippines;
3. The goods or properties are located in the
Philippines and are for use or consumption
therein; and
138 SAN BEDA COLLEGE OF LAW
2014 CENTRALIZED BAR OPERATIONS
4. The sale is not exempt from VAT under Sec. 109
of the NIRC, special law, or international
agreement binding upon the government of the
Philippines (RR No. 16-2005, Sec. 4.106-1).
Absence of any of the above requisites exempts the
transaction from VAT. However, percentage taxes
may apply.
Tax Base and Tax Rate: Twelve percent (12%) of
the gross selling price or gross value in money of
the goods or properties sold, bartered or exchanged.
Such tax is to be paid by the seller or transferor.
Gross Selling Price for Goods or Properties
Other than Real Property – the total amount of
money or its equivalent which the purchaser pays or
is obligated to pay to the seller in consideration of
the sale, barter or exchange of the goods or
properties, excluding VAT. The excise tax, if any, on
such goods or properties shall form part of the gross
selling price (NIRC, Sec. 106[A]).
If the VAT is not billed separately, the selling price
stated in the sales document shall be deemed to be
inclusive of VAT (NIRC, Sec. 106; RR No. 16-2005).
Allowable Deductions from Gross Selling Price:
1. Sales discounts determined and granted at the
time of the sale as expressly indicated in the
invoice. Discounts conditioned upon the
subsequent happening of an event or fulfillment of
certain conditions shall not be allowed as
deductions;
2. Sales returns and allowances granted where
proper credit or refund was made during the
month or quarter to the buyer for sales previously
recorded as taxable sales (RR No. 16-2005).
V AT ON SALE OF REAL
PROPERTIES
Requisites for Taxability of Sale or Exchange or
Real Property:
1. The seller executes a deed of sale, including
dacion en pago, barter or exchange, assignment,
transfer, or conveyance, or merely contract to sell
involving real property;
2. The real property is located within the Philippines;
3. The seller or transferor is a real estate dealer;
4. The real property is an ordinary asset – held
primarily for sale or for lease in the ordinary
course of business;
5. The sale is not exempt from VAT under the Sec.
109 of the NIRC, special law or international

agreement binding upon the government of the
Philippines; and
6. The threshold amount set by the law should be
met (RR No. 16-2005, Sec. 4.106-1).
Absence of any of the above requisites exempts the
transaction from VAT. However, percentage taxes
may apply.
Tax Base and Tax Rate: Twelve percent (12%) of
the gross selling price or gross value in money of
the goods or properties sold, bartered or exchanged.
Such tax is to be paid by the seller or transferor.
Gross Selling Price in Case of Real Property:
a. The consideration stated in the sales document; or
b. The fair market value (whichever is higher of the
zonal value as determined by the BIR or the value
shown in the schedule of values of the Provincial
and City Assessors [value declared in the latest
real property tax declaration]), whichever is higher.
Please see discussion on the allowable deductions
from gross selling price.
Sale of Real Property Covered by VAT
Sale by a real estate dealer of a:
1. Residential lot with gross selling price exceeding
P1,919,500;
2. Residential house and lot or other residential
dwellings with gross selling price exceeding
P3,199,200 (RR No. 16-2011);
3. Sale, transfer or disposal within a 12-month period
of two or more adjacent:
a. residential lots;
b. house and lots; or
c. other residential dwellings in favor of one buyer
from the same seller, for the purpose of utilizing
the lots, house and lots or other residential
dwellings as one residential area wherein the
aggregate value of the adjacent properties
exceeds P1,919,500 for residential lots, and
P3,199,200 for residential house and lots or
other residential dwellings (RR No. 13-2012
dated October 12, 2012).
Adjacent residential lots, houses and lots or other
residential dwellings, 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/s of
Conveyance, shall be presumed as a sale of one
residential lot, house and lot or residential
dwelling.
The sale of parking lots in a condominium is a
separate and distinct transaction and is not
covered by the rules on threshold amount not
being a residential lot, house & lot or a residential
dwelling, thus, should be subject to VAT
regardless of amount of selling price (RR No. 13-
2012 dated October 12, 2012).
Note: Whether the instrument is nominated as a
deed of absolute sale, deed of conditional sale or
otherwise.
Modes of Sale of Real Property by a Real Estate
Dealer
1. On Installment Plan – A sale which has initial
payments not exceeding twenty-five percent
(25%) of the gross selling price.
The real estate dealer shall pay VAT on
installment payments, including interest and
penalties, actually and/or constructively received
by the seller (RR No. 16-2005, Sec. 4.106-3).
Initial payments – Payment or payments which
the seller receives before or upon execution of the
instrument of sale and payments which he expects
or is scheduled to receive other than the
purchaser’s evidence of indebtedness, during the
calendar year where the real property was sold.
It covers any down payment made and includes all
payments actually or constructively received
during the year of sale, the aggregate of which
determines the limit set by law, i.e., P1,919,500.00
or P3,199,200.00.
2. On a Deferred Payment Basis – A sale which
has initial payments exceeding twenty-five percent
(25%) of the gross selling price.
The transaction shall be treated as cash sale
which makes the entire selling price taxable in the
month of the sale.
Distinctions between Sale on Installment Plan
and Sale on a Deferred Payment Basis
Installment Plan Deferred Plan
Initial payments do not Initial payments exceed
exceed 25% of the 25% of the gross selling
gross selling price price
Seller shall be subject
to output VAT on the
Transaction shall be
installment payments
treated as cash sale
received, including the
which makes the entire
interests and penalties
selling price taxable in
for late payment,
the month of sale
actually and/or
constructively received
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Output tax shall be residential lots with the improvements thereon to B

The buyer of the
recognized by the seller Co., a non-stock non-profit organization
property can claim the
and input tax shall established for charitable purposes and registered
input tax in the same
accrue to the buyer at with the Philippine Council for NGO Certification
period as the seller
the time of the (PCNC).
recognized the output
execution of the
tax
instrument of sale The donation by a VAT-registered person of its
Payments that are Payments that are ordinary assets is subject to VAT pursuant to
subsequent to “initial subsequent to “initial Section 4.106-7 of RR No. 16-05, as amended,
payments” shall be payments” shall no the same being considered a transaction deemed
subject to output longer be subject to sale.
VAT output VAT
2. Distribution or transfer to:
Summary of the Increased VAT Threshold (RR a. Shareholders or investors share in the profits of
No. 16-2011, effective January 1, 2012) VAT-registered person; or
Current Adjusted b. Creditors in payment of debt or obligation;
NIRC provision exemption threshold
levels amounts Illustration:
Sec. 109[P] – Some of the importations of JGU Corporation are
P1,500,000 P1,919,500
residential lot 100 cars which are intended to be sold locally.
Sec. 109[P] – The cars are currently being sold in the local
residential P2,500,000 P3,199,200 market at P500,000 per unit. Twenty units of these
house and lot cars were declared as property dividends and
Sec. 109 [Q] –rental distributed to its stockholders.
P10,000 P12,800
of residential unit
Sec. 109[V] – sales The distribution of 20 units are deemed sale and
of goods and subject to 12% VAT on the taxable base of
services not P1,500,000 P1,919,500 P500,000 per unit.
exceeding the VAT-
exemption threshold 3. Consignments of goods if actual sale is not made
within sixty (60) days following the date such
goods were consigned.
TRANSACTIONS DEEMED
SALE Exception: Consigned goods physically returned
by the consignee within the 60-day period are not
deemed sold;
The following are transactions deemed sales
(NIRC, Sec. 106 [B]): (TDCR) 4. Retirement from or cessation of business with
1. Transfer, use, consumption not in the course of respect to all goods on hand, whether capital
business of goods or properties originally intended goods, stock-in-trade, supplies or materials as of
for sale or for use in the course of business (i.e., the date of such retirement or cessation.
when a VAT-registered person withdraws goods a. Change of ownership of a business when:
from his business for his personal use); i. Single proprietorship incorporates;
ii. Proprietor of single proprietorship sells his
Illustration: business.
Jude, the sole proprietor of JV Trading, a VAT- b. Dissolution of a partnership and creation of a
registered business, consumed for personal use new partnership which takes over the business
P100,000 of the total purchase for the quarter. (NIRC, Sec. 106[B]; RR No. 16-2005, Sec.
4.106-[b]).
The P100,000 used for personal purpose is
deemed sale. Illustration:
Hook and Eye, partners in HE partnership, a
Donations by a VAT-registered person of ordinary VAT-registered merchandising business,
assets are subject to
VAT, the same being decided to dissolve their partnership. The
considered a transaction deemed sale. dissolution and liquidation resulted in the
distribution of P200,000 merchandise inventory
Illustration: to each of the partner.
A Co., a domestic real estate dealer, donated 23

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In the above case, the transfer of P400,000 (or
the value determined by the BIR) of
merchandise inventories to Hook and Eye will
be treated as if sold to partners. Thus,
transaction deemed sale.
Before considering whether the transaction is
“deemed sale”, it must first be determined whether
the sale was in the ordinary course of trade or
business. Even if the transaction was “deemed sale”
if it was not done in the ordinary course of trade or
business, still the transaction is not subject to VAT
(CIR v. Magsaysay Lines Inc., GR No. 146984, July
28, 2006).
Tax Base and Tax Rate: Twelve percent (12%) of
the market value of the goods deemed sold as of the
time of the occurrence of the transactions
enumerated in (1), (2), and (3) above. However, in
retirement or cessation of business, tax base shall
be the acquisition cost or the current market price of
the goods or properties, whichever is lower.
In the case of a sale where the gross selling price is
unreasonably lower than the fair market value, the
actual market value shall be the tax base.
Reason: To recapture the input tax that was
claimed by the buyer in the month of the purchase.
Note: Deemed sales apply only to sale of goods and
properties and not to sale and exchange of services.
There is no actual sale but there shall be deemed
sale by operation of law.
CHANGE OR CESSATION OF
S T A T U S A S V AT-
REGISTERED PERSON
Subject to 12% Output VAT:
The 12% VAT shall apply to goods or properties
existing as of the occurrence of the following:
1. Change of business activity from VAT taxable
status to VAT-exempt status (e.g., A VAT-
registered person engaged in a taxable activity
like wholesaler or retailer who decides to
discontinue such activity and engages instead in
life insurance business or in any other business
not subject to VAT);
2. Approval of a request for cancellation of VAT
registration due to:
a. Reversion to exempt status;
b. Desire to revert to exempt status after lapse of 3
consecutive years from the time of registration
by a person who voluntarily registered despite
being exempt under Sec. 109[2] of the NIRC;
c. Failure to meet the specific threshold
(P1,919,500) by one who commenced business
with the expectation of reaching the required
gross sales or receipts during the first 12
months of operation (RR No. 16-2005, Sec.
4.106-8).
Not Subject to 12% Output VAT
The 12% VAT shall not apply to goods or properties
which are originally intended for sale or for use in
the course of business existing as of the occurrence
of the following, as they are mere changes in form
and not in substance:
1. Change of control of a corporation by the
acquisition of the controlling interest of such
corporation by another stockholder (individual or
corporate) or group of stockholders.
The goods or properties used in the business
(including those held for lease) or those
comprising the stock in trade of the corporation
having a change in corporate control will not be
considered sold, bartered, or exchanged despite
the change in the ownership interest in the said
corporation since the same corporation still owns
them.
Exceptions:
a. Exchange of property by corporation acquiring
control for the shares of stocks of the target
corporation.
b. From the point of view of the person who joins
the corporation, who exchanges his properties
held for sale or for lease for shares of stocks,
whether resulting to corporate control or not.
Illustration: SBC Corp., engaged in furniture
business, has finished goods amounting to P10M.
1D Corp, a manufacturer of industrial equipment,
exchanged its heavy equipment for the shares of
stock of SBC Corp. acquiring corporate control
thereof. The inventory of SBC Corp. of P10M is
not subject to output tax despite change in
corporate control because the same corporation
still owns them. This is in recognition of the
separate and distinct personality of the corporation
from its stockholders. However, the exchange of
heavy equipment held for sale or lease and which
are not used in the ordinary course of its business
for shares of stock, whether it would result to
corporate control or not, is subject to VAT.
2. Change in trade name or corporate names of the
business; or
3. Merger or consolidation of corporations.
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The unused input tax of the dissolved corporation,
as of the date of merger or consolidation, shall be
absorbed by the surviving corporation (RR No. 10-
2011).
V AT ON IMPORTATION OF
GOODS
VAT on Importation of Goods
The importation of goods herein contemplated refers
to importation by any person, who may or may not
be engaged in trade or business in the Philippines
(RR No. 15-2005).
Tax Base and Tax Rate: Twelve percent (12%)
based on:
1. Total value used by the BOC in determining tariff
and customs duties, plus customs duties, excise
taxes, if any, and other charges prior to the
release of goods from the customs;
2. Landed cost in case the valuation used by the
BOC is based on volume and quantity. Landed
cost consists of the invoice amount, customs
duties, freight, insurance and other charges and
also excise tax, if any (NIRC, Sec. 107).
The same rule applies to technical importation of
goods sold by a person located in a Special
Economic Zone to a customer located in a customs
territory (RR No. 16-2005).
Technical Importation
In the case of tax-free importation of goods into the
Philippines by persons, entities or agencies exempt
from tax where such goods are subsequently sold,
transferred or exchanged in the Philippines to non-
exempt persons or entities, the purchasers,
transferees or recipients shall be considered the
importers thereof, who shall be liable for any internal
revenue tax on such importation. The tax due on
such importation shall constitute a lien on the goods
superior to all charges or liens on the goods,
irrespective of the possessor thereof (NIRC, Sec.
107[B]).
Illustration: MD is a tax-exempt entity that imported
goods, and then subsequently sold it to E, a VAT
person. E has to pay for the VAT. E can claim the
VAT paid as creditable input taxes.
Please refer to discussions on sales made in a
customs territory.
When and by whom paid: The VAT on importation
shall be paid by the importer prior to the release of
such goods from customs custody.
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Importer
Refers to any person who brings goods into the
Philippines, whether or not made in the course of
trade or business. It includes non-exempt persons
or entities who acquire tax-free imported goods from
exempt persons, entities or agencies (RR No. 16-
2005, Sec. 4.107-1)
V AT ON THE SALE OF
SERVICE AND USE OR LEASE
OF PROPERTIES
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 (NIRC, Sec.
108).
Requisites for Taxability:
1. There is a sale or exchange of service or lease or
use of property enumerated in the law or other
similar services;
2. The service is performed or to be performed in the
Philippines, and in case of lease, property leased
or used must be located in the Philippines (place
where the contract of lease or the licensing
agreement was executed is irrelevant);
3. The service is in the course of the taxpayer’s trade
or business or profession;
4. The service is for a valuable consideration actually
or constructively received; and
5. The service is not exempt under the NIRC,
special law or international agreement (NIRC,
Sec. 108[A]).
Absence of any of these requisites renders the
transaction exempt from VAT but maybe subject to
other percentage tax under the NIRC.
Tax Base and Tax Rate: Twelve percent (12%) of
the gross receipts derived from the sale or exchange
of services, including the use or lease of properties
(NIRC, Sec. 108).
Gross Receipts
Total amount of money or its equivalent
representing the contract price, compensation,
service fee, rental or royalty, including the amount
charged for materials supplied with the services and
deposit applied as payments for services rendered
and advance payments actually or constructively
received during the taxable period for the services
performed or to be performed for another person,
excluding VAT, except those amounts earmarked for
payment to unrelated third party or received as

reimbursement for advanced payment on behalf of
another which do not redound to the benefit of the
payor (RR No. 16-2005, Sec. 4.108-4).
Actual Receipt
Receipt constitutes a transfer of property from one
party to another at the taxpayer’s direction, or for the
benefit of the taxpayer; need not be in the form of
cash, can be in the form of property or cash
equivalent.
Constructive Receipt
Occurs when the money consideration or its
equivalent is placed at the control of the person who
rendered the service without restrictions by the
payor (e.g., deposit in banks made available to
seller of services or set-off of seller of services’ debt
with the consent of the latter as payment for
services rendered to the former) (RR No. 16-2005,
Sec. 4.108-4).
Amounts are constructively received when:
1. Credited to the taxpayer’s account;
2. Set apart for the taxpayer; or
3. Otherwise made available so that the taxpayer
may draw upon it at any time, or draw upon it
when notice of intention to withdraw has been
given (RR No. 16-2005, Sec. 4.108-4).
Actual or constructive receipt of the contract price,
compensation, remuneration or fee makes the seller
of service liable to VAT, even if no service has yet
been performed by him (MAMALATEO, supra at
336).
Sale or exchange of services includes services
performed or rendered by:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and
immigration brokers;
3. Lessors of property, whether personal or real;
Lease of property shall be subject to VAT
regardless of the place where the contract of lease
or licensing agreement was executed if the
property leased or used is located in the
Philippines (Destination Principle).
The licensee shall be responsible for the payment
of VAT on such rentals and/or royalties in behalf of
the non-resident foreign corporation or owner
In a lease contract, the advance payment by the
lessee may be:
a. A loan to the lessor from the lessee; or
b. An option money for the property; or
c. A security deposit to insure the faithful
performance of certain obligations of the lessee
to the lessor; or
d. Pre-paid rental.
If the advance payment is either of (a), (b) or (c)
above, such advance payment is not subject to
VAT. Because (a), (b) or (c) is not yet considered
as actual or constructive receipt liable for VAT.
However, security deposits in lease contracts are
subject to VAT when applied to rental at the time
of its application. If the advance payment
constitutes a prepaid rental, then such payment is
taxable to the lessor in the month when received,
irrespective of the accounting method employed
by the lessor (RR No. 16-2005, Sec. 4.108-3).
4. Warehousing services;
5. Lessors or distributors of cinematographic films;
6. Persons engaged in milling, processing,
manufacturing or repacking goods for others;
7. Proprietors, operators, or keepers of hotels,
motels, resthouses, pension houses, inns, resorts,
theaters and movie houses;
8. Proprietors or operators of restaurants,
refreshment parlors, cafes and other eating
places, including clubs and caterers;
The gross receipts of recreational clubs including
but not limited to membership fees, assessment
dues, rental income, and service fees are subject
to VAT.
9. Dealers in securities;
10. Lending investors;
Lending investor includes all persons other than
banks, non-bank financial intermediaries, finance
companies and other financial intermediaries not
performing quasi-banking functions who make a
practice of lending money for themselves or others
at interest.
Interest income derived by a taxpayer not
engaged in the business of lending money from
loans or advances granted to affiliates is not
subject to VAT (Waterfront Philippines, Inc. v. CIR,
CTA Case No. 8024, November 13, 2012).
11. 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;
12. 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;
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13. Sales of electricity by generation, transmission
and/or distribution companies;
Exception: Sale of power or fuel generated
through renewable sources of energy such as,
but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and
other emerging energy sources using
technologies such as fuel cells and hydrogen
fuels shall be subject to zero percent (0%) VAT
(RR No. 16-2005, Sec. 4.108-3).
14. Franchise grantees of electric utilities, telephone
and telegraph, radio and/or television
broadcasting and all other franchise grantees
except those under Sec. 119 of the NIRC;
Note: Franchise grantees of radio and/or
television broadcasting whose annual gross
receipts of the preceding year do not exceed P10
million, and franchise grantees of gas and water
utilities are not subject to VAT.
15. Non-life insurance companies (except their crop
insurances) including surety, fidelity, indemnity
and bonding companies;
The gross receipts on non-life insurance
companies shall mean total premiums collected,
whether paid in money, notes, credits or any
substitute for money.
Non-life reinsurance premiums are not subject to
VAT. Insurance and reinsurance commissions,
whether life or non-life, are subject to VAT (RR
No. 04-07).
16. Similar services regardless of whether or not the
performance thereof calls for the exercise or use
of the physical or mental faculties (R.R. No. 16-
05).
The phrase “sale or exchange of services” shall
likewise include:
1. The lease or the 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;
Royalty payments to non-residents are subject to
twelve percent (12%) withholding value-added tax
(WVAT). The resident payor is required to
withhold twelve percent (12%) VAT before paying
the royalties to the non-resident payee (BIR Ruling
No. ITAD 002-12, January 10, 2012).
Royalties paid for the use of trademarks are
generally subject to VAT. However, when the
144 SAN BEDA COLLEGE OF LAW
2014 CENTRALIZED BAR OPERATIONS
income payor is a PEZA-registered entity to whom
VAT may not be passed on, the royalties shall be
exempt from VAT (BIR Ruling No. ITAD 365-12,
October 24, 2012).
2. The lease or the use of, or the right to use any
industrial, commercial, or scientific equipment;
3. The supply of scientific, technical industrial or
commercial knowledge or information;
4. 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 as is mentioned in subparagraph
(2) or any such knowledge or information as is
mentioned in subparagraph (3);
5. The supply of services by a non-resident 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 nonresident
person;
6. 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;
7. The lease of motion picture films, films, tapes, and
discs; and
8. The lease or the use of, or the right to use, radio,
television, satellite transmission and cable
television time (RR No. 16-2005).
Cinema/theater operators may not refuse to
shoulder the VAT component from their lease of
cinematographic films. The exemption from VAT
of cinema/theater operators or proprietors, which
was upheld by Supreme Court (Commissioner of
Internal Revenue v. SM Prime Holdings, G.R. No.
183505, February 26, 2010), is only limited on the
gross receipts derived by cinema/theater
operators or proprietors from admission tickets
and does not extend to the purchase or lease of
cinematographic films. Hence, owners, producers,
and lessors of cinematographic films may pass on
the VAT component to cinema/theater operators
or proprietors on the sale or lease of
cinematographic films (BIR Ruling No. 047-2013,
January 24, 2013).
Condominium Corporations Subject to VAT and
Income Tax
The association dues, membership fees, and other
assessments/charges collected by condominium
corporations constitute income payment or
compensation for beneficial services that the
condominium corporations provide to their members
and tenants. Thus, the gross receipts of
condominium corporations including association
Z E R O -R A T E D S A L E S OF V AT
R E G I S T E R E D P E R S O N S
dues, membership fees and other assessments and
charges are subject to VAT and income tax. Income
payments made to condominium corporations are
subject to applicable withholding taxes under
existing regulations (RMC No. 65-2012, October 31,
2012).
Homeowners’ Association of Subdivisions and
Villages
Contributions to associations in exchange for goods,
services and use of properties constitute as other
assessments/charges from activity in exchange for
the performance of a service, use of properties or
delivery of an object. As such, these fees are
income on the part of the associations that are
subject to income tax under Section 27 of the Tax
Code, as amended.
Further, considering that these fees are received in
the conduct or pursuit of commercial or economic
activity, these fees are also subject to value added
tax (VAT) imposed in Sections 106 and 108 of the
same Code (RMC NO. 53-2013, August 16, 2013).
VAT on Professionals
Are lawyers liable for VAT for legal services
rendered?
Yes. R.A. 9337 clearly provided that sale of legal
services by a lawyer or a law firm shall be subject to
VAT effective November 1, 2005. There was an
elimination of the exemption from VAT of legal
services, deleting the old Sec. 109[BB] of R.A. 9238.
A lawyer practicing his profession is subject to
VAT if:
1. There is no employer-employee relationship
between him and the person to whom he provides
the legal service; and
2. His gross receipts for the next twelve (12) months
exceed P1,919,500 (RR No. 16-2011).
Otherwise, he is exempt from VAT.
Sales which are zero-rated shall result to zero (0)
output tax since the tax rate applied to the tax base
is zero percent (0%). Since the output tax is zero,
the seller shall pay no VAT.
However, as an advantage, the seller shall be
entitled to an input tax which he may credit against
his zero output tax giving rise to an excess input tax.
Illustration:
X is a VAT-registered business, engaged in export
of locally made products. During the taxable year, its
total export sales all denominated in foreign
currency has equivalent value of P500,000. Its total
input payments for purchases and utilized services
all in connection with the conduct of business
amounted to P36,000.
If X has no other transactions which will give rise to
business tax liability, its tax credit/refund would be
as follows:
Export Sale-Output tax(P500,000 x 0%) P 0
Less: Creditable Input Tax 36,000
Net VAT Refundable P 36,000
Note: The seller must be a VAT-registered person
to make his export sales zero-rated. Any Input VAT
attributable to the purchase of capital goods or to
zero rated sales by a VAT-registered person may at
his option be refunded or credited against other
internal revenue taxes, subject to the provisions of
the NIRC, Sec. 112.
If he is a not VAT-registered person (i.e., he
registered as VAT-exempt), then his export sales
shall be merely VAT-exempt under Sec. 109[1][O] of
the NIRC, disallowing him to claim his unused
creditable input taxes attributable to export sales in
the form of refund or tax credit.
Input tax attributable to zero-rated sales, at the
option of the taxpayer, may be:
1. Refunded; or
2. Credited against other internal revenue taxes,
subject to the provisions of Section 112 (RMC 57-
2013, August 23, 2013).
Kinds of Zero-Rated Sales:
I. As to object of the sale:
A. Zero-Rated Sales of Goods or Properties
(NIRC, Sec. 106[A][2]): (EFI)
1. Export Sales (ANEGEI)
a. The sale and Actual shipment of goods from
the Philippines to a foreign country (actual
export sale) which must be paid for in
acceptable foreign currency and accounted for
in accordance with the rules and regulations
of BSP;
b. The sale of raw materials or packaging
materials to Non-resident buyer for delivery to
resident local export-oriented enterprise to be
used in manufacturing, processing, packing,
or repacking in the Philippines of the said
buyer’s goods, which must be paid for in
acceptable foreign currency and accounted for
in accordance with the rules and regulations
of BSP;
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c. Sale of raw materials or packaging materials 2. Foreign Currency Denominated Sales

to an Export-oriented enterprise. a. Sale to non-resident (refers to balikbayans)
b. Of goods assembled or manufactured in the
Export-Oriented Enterprise - An enterprise Philippines except automobiles (NIRC, Sec.
whose export sales exceed seventy percent 149) and non-essential goods (NIRC, Sec.
(70%) of total annual production (RR No. 16- 150);
2005, Sec. 4.106-5) c. For delivery to a resident in the Philippines;
and
d. Paid for in acceptable foreign currency and
d. Sale of Gold to the BSP;
accounted for in accordance with the rules
Except for sale of gold to the BSP, sale of
and regulations of the BSP (NIRC, Sec.
metallic minerals to persons and entities is
106[A][2][b]).
subject to 12% VAT if the value exceeds the
threshold set by the NIRC and existing
3. Sales to persons or entities deemed tax-
issuances. Sale of gold to BSP is subject to
exempt under Special Law or International
VAT at 0% if the seller is a VAT-registered
taxpayer (RR No. 6-2012 dated April 2, 2012). Agreement
e. Those “considered Export sales under E.O. Such as the Asian Development Bank (ADB)
and International Rice Research Institute (IRRI)
226” (Omnibus Investment Code of 1987) and
which shall be effectively subject to zero-rate.
other special laws;
Note: Nos. 1 and 2 are considered as
Considered Export Sales (under E.O. 226)
automatically zero-rated sales while No. 3 is
shall mean the Philippine Free On Board
an effectively zero-rated sale.
(FOB) value determined from invoices, bills of
lading, and other commercial documents of
B. Zero-Rated Sales of Services (NIRC, Sec.
export products exported directly by registered
108[B]): (POSIST-R)
export producers, or the net selling price of
export products sold by a registered export 1. Processing, manufacturing or repacking of
producer to another export producer, or to an goods for other persons doing business outside
the Philippines, which goods are subsequently
export trader that subsequently exports the
exported and paid for in acceptable foreign
same.
currency and accounted for in accordance with
the rules and regulations of the BSP;
“Considered export sales under E.O. 226” is
2. Services other than those mentioned in the
expanded to make sales of goods and
preceding paragraph rendered to a person
services by a VAT-registered in the customs
engaged in business conducted Outside the
territory to Ecozone and free port enterprises
Philippines or to a non-resident person not
automatically zero-rated (RR No. 4-2007, Sec.
engaged in business who is outside the
4.106-5).
Philippines when the services are performed
f. Sale of goods, supplies, equipment and fuel to and paid for in acceptable foreign currency and
persons engaged exclusively in International accounted for in accordance with the rules and
regulations of the BSP;
shipping or international air transport
3. Services rendered to persons or entities whose
operations.
exemption under Special laws or international
agreements to which the Philippines is a
Goods subject to zero-rating are limited to
signatory effectively subjects the supply of such
goods and passengers transported from a port
services to zero percent (0%) rate;
in the Philippines directly to a foreign port, or
4. Services rendered to persons engaged in
vice versa, without docking or stopping at any
International shipping or air transport
other port in the Philippines.
operations, including leases of property for use
“Without docking or stopping at any other thereof;
port in the Philippines” – an international
Note: Crewing services rendered by a VAT-
airline that makes a stopover in a Philippine
registered company to a foreign ocean-going
port to unload passengers and/or cargoes
vessel that is paid for in foreign currency is
from a foreign destination or to pick up
subject to VAT at zero percent (0%). However,
passenger and/or cargoes for foreign
the entitlement to zero percent (0%) VAT does
destination is deemed not to have docked or
not extend to services rendered to common
stopped at any other port in the Philippines
carriers by sea with respect to transport of
(RR No. 4-2007, Sec. 4, 106-5).

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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 in accordance with Sec.
4.108-5[b][4] of RR No. 16-2005, as amended
(BIR Ruling No. 295-2012 dated May 3, 2012).
5. Services performed by Subcontractors and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose
export sales exceed 70% of the total annual
production;
6. Transport of passengers and cargo by domestic
air or sea carriers from the Philippines to a
foreign country; and
Note: Gross receipts of international air and sea
carriers doing business in the Philippines shall
still be subject to three percent (3%) Percentage
Tax (NIRC, Sec. 118).
7. 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
emerging sources using technologies such as
fuel cells and hydrogen fuels.
The sale of power or fuel is the one being
subject to zero percent (0%) and not the sale of
services related to the maintenance or operation
of the plants generating said power (Sec.4.108-
5, RR No. 16-2005).
II. As to how the transaction shall be subject to
zero-rating:
A. Automatically Zero-Rated Sales – refers to a
sale of goods, properties and services by a VAT-
registered seller/supplier that is regarded as either
an export sale or a foreign currency denominated
sale under Sec. 106 of the NIRC (RMC No. 50-07
dated July 30, 2007). Examples are sales to
registered ecozones and freeport zones (RR No.
4-07, February 7,2007).
B. Effectively Zero-Rated Sales – refers to the
local sale of goods, properties and services by a
VAT-registered person to an entity that was
granted indirect tax exemption under special laws
or international agreements. Since the buyer is
exempt from indirect tax, the seller cannot pass on
the VAT and therefore, the exemption enjoyed by
the buyer shall extend to the seller, making the
sale effectively zero-rated (RMC No. 50-07 dated
July 30, 2007).
Application for Effective Zero Rating
Sec. 6 of RR No. 4-07, which amended Sec. 4.106-6
of RR No. 16-05 dispensed with the requirement for
prior BIR approval for effectively zero-rated sales of
goods and properties. However, the VAT zero-rated
sellers have to submit the supporting documents as
required by the existing rules and regulations to
qualify for VAT zero-rating to the concerned BIR
Offices for post-audit and for validation of the zero-
rated transactions (BIR Ruling DA No. [VAT-003]
010-2009, January 14, 2009).
Other than the general registration of a taxpayer the
VAT status of which is aptly determined, no
provision under our VAT law requires an additional
application to be made for such taxpayer’s
transactions to be considered effectively zero-rated.
An effectively zero-rated transaction does not and
cannot become exempt simply because an
application therefor was not made or, if made, was
denied. A VAT-registered status, as well as
compliance with the invoicing requirements, is
sufficient for the effective zero rating of the
transactions of a taxpayer (CIR v. Seagate
Technology (Philippines), G.R. No. 153866,
February 11, 2005).
Doctrine on Effectively Zero-Rated Sales
The provision subjecting the Philippine Amusement
and Gaming Corporation (PAGCOR) to Value
Added Tax (VAT) is invalid for being contrary to R.A.
9337 (PAGCOR v. BIR, G.R. No. 172087, March 15,
2011).
Hence, PAGCOR being an entity granted indirect
tax exemption, its lessor is subject to effective zero
percent (0%) VAT on its rental income and sales to
the former (CIR v. Acesite Hotel Corp., G.R. No.
147295, February 16, 2007).
Sales Made to Foreign Embassies
For taxation purposes, embassies are considered
extensions of their respective countries’ territory. As
such, any sale within a foreign embassy is
considered foreign sale or transaction outside the
Philippine territory. The sale of goods or properties
by local suppliers to a non-resident foreign
corporation providing required security measure of
the embassy is considered a transaction outside the
Philippine territory that qualifies for VAT zero-rating.
However, said sale is an effectively zero-rated sale
which shall require the said local suppliers to secure
prior approval from the BIR for effective zero-rating
on their sale of goods or properties to non-resident
foreign corporation (BIR Ruling No. 536-04, October
29, 2004).
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TRANSACTIONS

Sale, Barter or Exchange of Goods, Propeties or the seller is not allowed any tax credit of VAT (input
Services in Ecozones tax) on purchases (RR No. 6-2005, Sec. 4.109-1).

Customs Territory The person making the exempt sale of goods,

Means the national territory of the Philippines properties or services shall not bill any output tax to
outside of the proclaimed boundaries of the his customers because the said transaction is not
Ecozones except those areas specifically declared subject to VAT (RR No. 16-2005, Sec. 4.109-1).
by other laws and/or presidential proclamations to
have the status of special economic zones and/or
Features of VAT-Exempt Transactions:
free ports (PEZA Rules and Regulations, Sec. 1[g];
1. VAT-exempt transactions shall not be included in
CIR v. Seagate Technology Philippines, Inc., G.R.
determining the general threshold prescribed by
No. 153866, February 11, 2005; CIR v. Toshiba
law (P1,919,500) (RR No. 16-2011).
Information Systems Philippines, G.R. No.150154,
2. VAT-exempt transactions shall not be liable for
August 9, 2005).
VAT or the three percent (3%) percentage tax
under Sec. 116 of the NIRC.
Ecozone or Special Economic Zone 3. The person making the exempt sale of goods,
Selected areas with highly developed or which have properties, or services shall not bill any output tax
the potential to be developed into agro-industrial,
to his customers because the said transaction is
industrial, tourist, recreational, commercial, banking,
not subject to VAT (RR No. 16-2005).
investment and financial centers whose metes and
bounds are fixed or delimited by Presidential
Distinction between Zero-Rated Sales and VAT-
Proclamations. Ecozones, by fiction of law, are
Exempt Sales
considered foreign territories.
Zero-rated sales Vat-exempt sales
The transaction is
While an ecozone is geographically within the
completely free of VAT
Philippines, it is deemed a separate customs
because the tax rate Exemption only as it
territory and is regarded in laws as foreign soil.
applied on the tax base removes the VAT at the
Sales by supplies outside the borders of the
is zero, hence, the exempt stage.
ecozone to this separate customs territory are
seller charges no
deemed exports and treated as export sales (CIR v.
output tax
Seksui Jushi Phils, Inc., G.R. No. 149671, July 21,
VAT payer cannot claim
2006).
VAT payer can claim a credit or refund for
and enjoy a credit or the input tax (which
Proof of VAT Zero-Rated Sales
refund for the input tax. could result to
The documents that should be presented by the
The benefit is 100% of increased prices of
taxpayer to prove that there is direct export sales
the tax (total relief). goods or services
are:
(partial relief).
1. Sales invoice as proof of sale of goods;
2. Export declaration and bill of lading or airway bill Not considered as
as proof of actual shipment of goods from the taxable sales. A person
Still considered as
Philippines to a foreign country; and who makes only
“taxable sales” for the
3. The bank credit advice, certificate of bank exempt sales is not a
purpose of measuring
remittance or any other document proving taxable person for VAT
turnover sales.
payment for the goods in acceptable foreign purposes and may not
VAT registration is
currency or its equivalent in goods and services register for VAT.
required.
(Philippine Gold Processing & Refining Corp. v. VAT registration is
CIR, CTA Case No. 8270, June 11, 2013). optional.

Transactions Exempt from VAT:

A. Sale or Importation: (AFAB)
1. 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
“VAT-exempt transactions” refer to the sale of goods consumption; and breeding stock and genetic
or properties and/or services and the use or lease of materials therefore:
properties that is not subject to VAT (output tax) and a. Non-food products are not included under this
category. Livestock or poultry does not include
fighting cocks, race horses, zoo animals, and

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other animals generally considered as pets
(RR 16-2005, Sec. 4-109-1);
b. Original State – product classified as such
shall remain such even if they have
undergone the simple process of preparation
or preservation for the market such as
freezing, drying, salting, broiling, roasting,
smoking or stripping. Advanced technological
means of packaging such as shrink wrapping
in plastics, vacuum packing, tetra-pack, in
itself does not make the same liable to VAT
(RR No. 16-2005, Sec. 4-109-1).
Examples of products in its original state:
frozen boneless briskets, frozen boneless
buffalo meat, deboned fish.
Polished and/or husked rice, corn grits, raw
cane sugar and molasses, ordinary salt and
copra shall be considered in their original
state (RR 16-2005, Sec. 4.109-1).
Examples of products not in original state:
solar salt, iodized salt; chilli powder; onion
powder and garlic powder since anti-oxidants
have already been incorporated.
c. Not a “simple process” if it is a physical or
chemical process which would alter the
exterior or inner substance of a product in
such a manner as to prepare it for special use
to which it could not have been put in its
original form or condition.
Bagasse is not included in the VAT
exemption.
Centrifugal process of producing sugar is not
in itself a simple process. Therefore any type
of sugar produced therefrom is not exempt
from VAT (RR No. 13-08).
Notes:
a. Sale of Andok’s roasted chicken is exempt
from VAT. However, should Andok’s maintain
a facility by which the roasted chicken will be
offered as a menu to customers who would
dine-in, then it will be subject to the VAT on
sale of service which is similarly imposed on
restaurants and other eateries (VAT Ruling
No. 009-07, June 21, 2007).
b. Not all sales of marine or agricultural food
products in processed form are subject to
VAT. Exempt are those sold by agricultural
cooperatives registered under CDA (Please
refer to discussions below).
2. 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;
Exception: Specially made feeds for Race
horses, Fighting cocks, Aquarium fish, Zoo
animals and Other animals generally considered
as pets (ZOFAR).
3. Sale, importation or lease of passenger or cargo
vessels and Aircraft, including engine,
equipment and spare parts thereof for domestic
or international transport operations weighing
150 tons and above and which complies with
the age limit provided by law; and
4. Sale, importation, printing or publication of
Books and any newspaper, magazine, review,
or bulletin.
Requisites to be VAT-Exempt:
The newspaper, magazine, review or bulletin
must:
a. be printed or published at regular intervals;
b. be available for subscription and sold at fixed
prices; and
c. not be principally devoted to the publication of
paid advertisements.
Note: The terms “book”, “newspaper”,
“magazine”, “review”, and “bulletin” as used in
Sec. 109[1][R] of the NIRC shall refer to printed
materials in hard copies, and do not include
those in digital or electronic format or
computerized versions, including but not limited
to the following: e-books, e-journals, electronic
copies, online library sources, CDs and software
(RMC No. 75-2012 dated November 22, 2012).
General Rule: All imported books, whether for
commercial or personal use are exempt from
VAT and customs duties.
Exception: Books published by or for a private
commercial enterprise essentially for advertising
purposes as stated in Annex A of the Florence
Agreement (Agreement on the Importation of
Educational, Scientific and Cultural Materials)
(DOF Order No. 57-2011 dated December 9,
2011).
2
B. Sale: (REC )
1. Sale of Real properties;
Requisites to be VAT-Exempt:
a. Not primarily held for sale to customers or
held for lease in the ordinary course of trade
or business;
b. Utilized for low-cost housing;
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c. Utilized for socialized housing;
d. Residential lot valued at P1,919,500 and
below;
e. House and lot and other residential dwellings
valued at P3,199,200 and below; or
f. Two or more adjacent residential lots where
the aggregate value does not exceed P1,
919,500.
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 the trade or business of the
seller, the sale thereof shall be subject to VAT
being a transaction incidental to the taxpayer’s
main business (RR No. 04-2007, Sec. 14).
Example: VAT-registered person engaged in
manufacturing sells his warehouse, which was
used in his business, the sale shall be subject to
VAT being an incidental to his business.
2. Export sales by persons who are not VAT
registered;
Reason: To encourage exporters of goods to
register as a VAT person with the BIR to be able
to claim unused input tax in the form of refund or
tax credit.
If he is a VAT-registered, his export sales are
zero-rated under Sec. 106[A][2] of the NIRC.
3. Sales by agricultural Cooperatives of food and
non-food products (whether in original or
processed form) duly registered and in good
standing with the Cooperative Development
Authority (CDA) to:
a. Their members – VAT-exempt whether or not
the cooperative is the producer of the goods;
or
b. Non-members – VAT-exempt only if the
cooperative is the producer.
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
shall also be exempt (Compare with no. 4
below).
Is the sale of marine or agricultural food
products in processed form subject to VAT?
Generally, yes except those sold by agricultural
cooperatives registered under CDA (NIRC, Sec.
109[1][A] correlated to NIRC, Sec. 109[1][L]).
150 SAN BEDA COLLEGE OF LAW
2014 CENTRALIZED BAR OPERATIONS
4. Sales by non-agricultural, non-electrical and
non-credit Cooperatives duly registered and in
good standing with the CDA. Provided that:
a. Share capital contribution of each member
does not exceed P15,000; and
b. Regardless of the aggregate capital and net
surplus ratably distributed among the
members.
Importation by these cooperatives of
machineries and equipment, including spare
parts thereof, to be used by them are subject to
VAT (Compare with no.3 above).
C. Importation: (PP-FLC)
1. Importation of Personal and household effects
belonging to residents of the Philippines
returning from abroad and non-resident citizen
coming to resettle in the Philippines: provided,
that such goods are exempt from customs duty
under the Tariff and Customs Code of the
Philippines;
2. Importation of Professional instruments and
implements, wearing apparel, domestic animals,
and personal household effects;
Requisites to be VAT-Exempt:
a. Belonging to persons coming to settle in the
Philippines;
b. For their own use and not for sale, barter or
exchange;
c. Accompanying such persons or arriving within
90 days before or after their arrival;
d. Satisfactory evidence is given to the CIR that
such persons are actually coming to settle in
the Philippines and that the change of
residence is bona fide; and
e. Except any vehicle, vessel, aircraft,
machinery, other goods for use in the
manufacture and merchandise of any kind in
commercial quantity.
3. Importation of Fuel, goods and supplies by
persons engaged in international shipping or air
transport operations directly to a foreign port
without stopping at any other port in the
Philippines;
Such fuel, goods or supplies should not be used
for purposes other than intended, otherwise,
they shall be subject to VAT.
4. Importation of Life-saving equipment, safety and
rescue equipment and communication and
navigational safety equipment, steel plates and
other metal plates, used for shipping transport
operations (RR No. 4-2007, Sec. 14);

5. Importation of Capital equipment, machinery,
spare parts, lifesaving and navigational
equipment, steel plates and other metal plates
to be used in the construction, repair, renovation
or alteration of any merchant marine vessel
operated or to be operated in the domestic trade
(RR 4-2007, Sec. 14).
D. Services: (PAM-BEER)
1. Services subject to the Percentage taxes under
Secs. 116-117 of the NIRC;
2. 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 – Persons
producing for others poultry, livestock, or other
agricultural and marine food products in their
original state (RR No. 16-2005, Sec. 4.109-1[f]).
E. Others: (L ITO)
3. Medical, dental, hospital and veterinary services
except those rendered by professionals;
Laboratory services are exempted because it is
a hospital service (RR No. 16-2005, Sec. 4.109-
1[g]).
The sale of drugs to a hospital’s in-patients is
considered part of the term “hospital services”
covered by the exemption from VAT. If the sale
of medicine is made to an out-patient, such sale
is subject to VAT (MAMALATEO, VAT, supra at
163 and 274).
Requisites to be VAT-Exempt:
a. That the taxpayer operates a hospital;
b. That the said hospital has a pharmacy or
drugstore; and
c. That the sale of drugs - claimed to be exempt
from VAT - was made by the said hospital
drugstore or pharmacy to in-patients of the
hospital being operated by the taxpayer
(Hermano [San] Miguel Febres Cordero
Medical [De La Salle Health Services
Institute], Inc. v. Commissioner of Internal
Revenue, CTA Case No. 8194, May 15,
2012).
The services rendered by Health Maintenance
Organizations (HMOs), which do not provide
medical and/or hospital services but merely
arranges for the same, are not VAT-exempt (RR
No. 16-2005, Sec. 4.108-3[k]).
4. Services of Banks, non-bank financial
intermediaries performing quasi-banking
functions, and other non-bank financial
intermediaries such as money changers and
pawnshops;
Pawnshops – considered as non-bank financial
intermediary thus exempted from VAT but liable
to percentage tax (Tambunting Pawnshop, Inc.,
v. CIR, G.R. No. 179085, January 21, 2010).
5. Services rendered by individuals pursuant to an
Employer-employee relationship;
6. Educational services rendered by private
educational institutions duly accredited by the
DepED, CHED and TESDA and those rendered
by government educational institutions; and
7. Services rendered by Regional or area
headquarters established in the Philippines by
multinational corporations as satellite centers for
the latter and which do not earn or derive
income from the Philippines.
2
1. Lease of residential units, if the monthly rent:
a. Does not exceed P12,800 regardless of the
aggregate rentals received by the lessor.
b. Exceeds P12,800 but the aggregate rentals
received by the lessor do not exceed P1,
919,500, however, the same shall be subject
to three percent (3%) percentage tax (RR No.
16-2011).
Summary of Rules:
i. Monthly rental P12,800 or less regardless
of annual gross sales – VAT-exempt and
no percentage tax (VAT-exempt
transactions shall pay no VAT, neither
three percent (3%) percentage tax under
Sec.116 of the NIRC).
ii. Monthly rental above P12,800 but annual
gross sales do not exceed P1,919,500 –
VAT-exempt but shall pay three percent
(3%) percentage tax under Sec. 116 of the
NIRC.
iii. Monthly rental above P12,800 and annual
gross sales exceeds P1,919,500 – there
shall be VAT.
Specific threshold (P12,800 monthly rental)
and general threshold (P1,919,500 annual
gross sales) should be both met for this
transaction be liable to VAT.
2. Gross receipts from Lending activities by credit
or multi-purpose cooperatives duly registered
and in good standing with the CDA;
3. Transactions which are exempt under
International agreements to which the
Philippines is a signatory or under special laws
except those under P.D. 529 (Petroleum
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Exploration Concessionaires under the
Petroleum Act of 1949);
4. Transport of passengers by international
carriers (R.A. 10378, approved March 7, 2013);
and
5. 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
P1,919,500.
Note: Any person whose sales or receipts do
not exceed threshold amount and who is not a
VAT-registered person are exempt from VAT
but shall pay three percent (3%) percentage tax
of his quarterly sales or receipts (NIRC,
Sec.116).
A VAT registered person may elect that the above
exempt transactions shall not apply to his sales of
goods or properties or services.
Once the election is made, it shall be irrevocable for
a period of three (3) years counted from the quarter
when the election was made except for franchise
grantees of radio and TV broadcasting whose
annual gross receipts for the preceding year do not
exceed ten million pesos (P10,000,000) where the
option becomes perpetually irrevocable (RR No. 4-
07).
Creditable Input Tax
Any input tax on the following transactions
evidenced by a VAT invoice or official receipt issued
by a VAT-registered person shall be creditable
3
against output tax: (PIRST )
1. Presumptive Input tax (RR No. 16-2005, Sec.
4.111 [b]);
2. Purchase or Importation of goods:
a. For sale; or
b. For conversion into or intended to form part of a
finished product for sale, including packaging
materials; or
c. For use as supplies in the course of business; or
d. For use as raw materials supplied in the sale of
services; or
e. For use in trade or business for which deduction
for depreciation or amortization is allowed for
income tax purposes (capital goods);
3. Purchase of Real properties;
4. Purchase of Services;
5. Transactions deemed sale;
152 SAN BEDA COLLEGE OF LAW
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6. Transitional input tax (RR No. 16-2005, Sec. 4.111
[a]); and
7. Transitional input tax credits allowed under
transitory and other provisions.
Determination of Creditable Input Tax:
The amount of input taxes creditable during a month
or quarter shall be determined by:
1. Adding all creditable input taxes during the month
or quarter and any amount of input tax carried-
over from the preceding month or quarter,
2. Reduced by the amount of claim for VAT refund
or tax credit certificate (whether filed with BIR, with
Department of Finance, Board of Investments or
the BOC) and other adjustments, such as
purchase returns or allowances, input tax
attributable to exempt sales and input tax
attributable to sales subject to final VAT
withholding (RR No. 16-2005, Sec. 4.110-5).
The 70% cap on creditable input tax has already
been removed (R.A. 9361 amended Sec 110[B],
NIRC).
Depreciable Goods
Capital goods or properties refers to goods or
properties:
1. With estimated useful life greater than one (1)
year;
2. Which are treated as depreciable assets under
Sec. 34[F] of the NIRC; and
3. Used directly or indirectly in the production or sale
of taxable goods or services (Kepco Phil. Corp. v.
CIR, G.R. No. 179356, December 14, 2009).
Input Tax on Depreciable Goods
Where a VAT registered person purchases or
imports capital goods, which are depreciable assets
for income tax purposes, the aggregate acquisition
of which (exclusive of VAT) in a calendar month
exceeds P1M regardless of the acquisition cost of
each capital good:
1. Estimated useful life is five (5) years or more –
input tax shall be spread evenly over a period of
sixty (60) months to commence in the calendar
month when the capital good is acquired;
2. Estimated useful life is less than five (5) years
– input tax shall be spread evenly on a monthly
basis by dividing the input tax by the actual
number of months comprising the estimated useful
life. Such claim on for input tax shall commence in
the calendar month the capital good is acquired.
Where the aggregate acquisition cost (exclusive of
VAT) of the existing or finished depreciable capital
goods purchased or imported during any calendar
month does not exceed P1M, the total amount of

input taxes will be allowable as credit against output
tax in the month of acquisition.
An asset acquired in instalment for an acquisition
cost of more than P1M, excluding VAT, will be
subject to amortization of input tax despite the fact
that the monthly payments or instalments may not
exceed P1M (RR No. 16-2005, Sec. 4.110-3).
Aggregate Acquisition Cost – refers to the total
price, excluding VAT, agreed upon for one or more
assets acquired and not on the payments actually
made during the calendar month (RR No. 16-2005,
Sec. 4.110-3).
Sale or transfer of depreciable good within a
period of five (5) years or prior to the
exhaustion of the amortizable input tax – the
entire unamortized input tax on the capital goods
sold or transferred can be claimed as input tax credit
during the month or quarter when sale or transfer
was made.
Construction in Progress (CIP)
It is the cost of construction work, which is not yet
completed. (RR No. 16-2005, Sec. 4.110-3, as
amended).
Input Tax on CIP:
1. CIP is considered, for purposes of claiming input
tax, as a purchase of service, the value of which
shall be determined based on the progress
billings;
2. Until such time the construction has been
completed, it will not qualify as capital goods as
herein defined, in which case, input tax credit on
such transaction can be recognized in the month
the payment was made;
3. Provided, that an official receipt of payment has
been issued based on the progress billings. (RR
No. 16-2005, Sec. 4.110-3, as amended).
Contract for the sale of service where only labor
will be supplied by the contractor and the
materials will be purchased by the contractee
from other suppliers – input tax credit on the labor
contracted shall still be recognized on the month the
payment was made based on a progress billings
while input tax on the purchase of materials shall be
recognized at the time the materials were purchased
(RR No. 16-2005, Sec. 4.110-3, as amended).
Input tax claimed while the construction is still
in progress – no additional input tax can be claimed
upon completion of the asset when it has been
reclassified as a depreciable capital asset and
depreciated (RR No. 16-2005, Sec. 4.110-3, as
amended)
Input Tax on Mixed Transactions:
1. All the input taxes that can be directly attributed to
transactions subject to VAT may be recognized for
input tax credit;
2. If any input tax cannot be directly attributed to
either a VAT taxable or VAT-exempt transaction,
the input tax shall be pro-rated to the VAT taxable
and VAT-exempt transactions and only to the
ratable portion pertaining to transactions subject to
VAT may be recognized for input tax credit. The
allocation of input taxes shall be done
proportionately to each category of transaction.
3. The input tax attributable to VAT-exempt sales
shall not be allowed as credit against output tax
but should be treated as part of cost of the asset
or operating expense;
4. For persons engaged in both zero-rated sales and
non zero-rated sales, the aggregate input taxes
shall be allocated ratably between the zero–rated
sale and non zero-rated sale (RR No. 16-2005,
Sec. 4.110-4).
Determination of Output Tax and VAT Payable
and the Computation of VAT Payable or Excess
Tax (RR No. 16-2005, Sec. 4.110-6):
1. Output Tax
a. For sale of goods or properties:
Gross selling price x VAT rate = Output tax
b. For sale of services:
Gross receipts x VAT rate = Output tax
c. Where the basis for computing output tax is
either the gross selling price or gross receipts,
but the amount of VAT is erroneously billed in
the invoice – The total invoice amount is
presumed to be comprising of gross selling
price/gross receipts plus the correct VAT. Using
12% as the VAT rate, the formula to compute
the output tax is:
12%
Total invoice amount x = Output tax
112%
The input tax that can be claimed by the buyer
shall be the corrected amount of VAT.
2. VAT Payable/Excess Input Tax:
Output tax less input tax is VAT Payable or
Excess Input Credits, whichever is the case, on a
monthly VAT declaration and quarterly VAT
returns, subject to limitations prescribed by the
regulations.
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 WT RI TAHNH O INNAGL V
S IOTLI D ANAT
D
P R E S U M P T I V E I N P U T T A X

Formula: 1. Two percent (2%) of the value of the beginning

Output tax inventory on hand; or
Output tax
Less: Input P xx.xx 2. Actual VAT paid on such goods, materials and
exceeds input tax
tax xx.xx supplies.
at the end of any
VAT P xx.xx
taxable quarter
Payable The amount is creditable against the output tax of a
Input tax inclusive VAT-registered person.
Output tax
of input tax
Less: Input P xx.xx The Supreme Court in Fort Bonifacio Development
carried over from
tax (xx.xx) Corporation v. CIR (G.R. No. 173425, January 22,
the previous
Excess (Pxx.xx) 2013) held that prior payment of taxes is not
exceeds output
Input Tax required to avail of the 8% (now 2%) transitional
tax
input tax credit. There is nothing in the provisions of
Notes: Sec. 105 (now Sec. 111) of the NIRC which indicate
1. If at the end of any taxable quarter, VAT is a that prior payment of taxes is necessary for the
positive amount (the output tax exceeds the input availment of the 8% (now 2%) transitional input tax.
tax; such amount is called as excess output tax), All that is required under Sec.105 (now Sec. 111) of
then it is the VAT payable by the VAT-registered the NIRC is for the taxpayer to file a beginning
person. VAT payable in case of importation is inventory with the BIR.
already the amount due on such importation;
2. If the input tax, inclusive of input tax carried over Presumptive Input Tax (NIRC, Sec. 111[B])
from the previous quarter, exceeds the output tax, Persons or firms engaged in the: (PM)
the excess input tax shall be carried over to the 1. Processing of mackerel, milk and sardines (MMS);
succeeding quarter or quarters as tax credit (RR 2. Manufacturing cooking oil, packed noodle-based
No. 16-2005, Sec. 4.110-7 [b]). instant meals and refined sugar (CPR).

Net Processing – shall mean pasteurization, canning,

Exces Treat-
Output Input VAT and activities which through physical or chemical
s Input ment
Payable process alter the exterior texture or form or inner
12% 12 10 2 0 substance of a product in such a manner as to
10 12 0 2 Tax Credit prepare it for special use to which it could not have
Refundable/ been put in its original form or condition (RR No. 16-
0% 0 12 0 12
Creditable
2005, Sec. 4.111-1).
Unrecovera
Exempt 0 12 0 12
ble
Determination of Input Tax: The presumptive input
*All amounts are only assumed for illustration tax shall be four percent (4%) of the gross value in
purpose. money of their purchases of primary agricultural
products which are used as inputs to their
production.

The amount is creditable against the output tax of a

VAT-registered person.

Transitional Input Tax (NIRC, Sec. 111[A])

Transitional input tax on the inventory on hand as of
the effectivity of the VAT registration of taxpayers
who:
1. Became VAT-registered persons upon exceeding
the minimum turnover of P1,919,500 in any 12-
month period; or
2. Voluntarily registers as a VAT payer even if
turnover does not exceed P1,919,500 (except
franchise grantees of radio and/ or television
broadcasting whose threshold is P10M)
Allowed Transitional Input Tax Credit:
Whichever is higher between:
Types of Withholding VAT:
1. On payments by Government (final withholding
VAT); and
2. On payments to Nonresidents (final withholding
VAT)
Final Withholding VAT on Payments by
Government
Sale of goods and services to government is subject
to 12% VAT. However, the Government is required
to deduct and withhold a final VAT of five percent

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SUBSTANTIATION OF INPUT
V AT

(5%) for its purchases (See Standard Input Tax Output VAT 12 %
below) (RR No. 16-2005, Sec. 4.114-2). Less: Standard Input VAT 7%
Final Withholding VAT 5%
Even if the law does not expressly state that
Ironcon’s excess creditable VAT withheld is If actual input VAT attributable to sale to government
refundable, it may be the subject of a claim for exceeds 7% of gross payments, the excess may
refund as an erroneously collected tax under Sec. form part of the seller’s expense or cost.
204[C] and 229 of the NIRC. It should be clarified
that this ruling only refers to creditable VAT withheld If actual input VAT attributable to sale to government
pursuant to Sec. 114 of the NIRC prior to its is less than 7% of gross payments, the difference
amendment. After its amendment by R.A. 9337, the must be closed (deducted) to expense or cost.
amount withheld under Sec. 114 of the NIRC is now
treated as a final VAT, no longer under the Illustration:
creditable withholding tax system (CIR v. Ironcon Selling Price (inclusive of VAT): P112.00
Builders and Development Corp., G.R. No. 180042, VAT withheld by the government : P5.00
February 8, 2010). Standard Input VAT (SIV): P7.00

Creditable Withholding of VAT on Payments to Situation A:

Non-Residents Actual cost of goods of seller is P89.60 (P80 +
The Government or any of its political subdivisions, P9.60 IV):
instrumentalities or agencies, including GOCCs, as Standard Input VAT P 7.00
well as private corporations, individuals, estates and Less: Actual Input VAT 9.60
trusts, whether large or non-large taxpayers, shall Excess Actual Input VAT* P 2.60
withhold twelve percent (12%) VAT, with respect
to: *Since taxpayer cannot credit as input tax the
1. Lease or use of properties or property rights amount of P2.60, it is considered as part of
owned by non-residents; and additional expense of the seller.
2. Other services rendered in the Philippines by non-
residents (RR No. 16-2005, Sec. 4.114-2). Situation B:
Actual cost of goods of Seller is P50.40 (P45 +
Standard Input Tax P5.40 IV):
Input tax attributed to VATable sales to Government Standard Input VAT P 7.00
not creditable against output tax on sales to non- Less: Actual Input VAT 5.60
Government entities. Excess Standard Input VAT* P 1.60

Input taxes that can be directly attributable to
VATable sales of goods and services to the
Government or any of its political subdivisions,
instrumentalities or agencies including GOCCs shall
not be credited against output taxes arising from
sales to non-Government entities.
*Since he can credit as input tax P7.00 instead of
the actual IV of P5.40, he gained from the
transaction hence, P1.60 is recognized as deduction
to the seller’s expenses or costs.

The Government or any of its political subdivisions,

instrumentalities or agencies including GOCCs shall
deduct and withhold a final VAT due at the rate of
five percent (5%) of the gross payment (NIRC,
Sec. 114 [C]).
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.
Timing for Claiming Input VAT
The input tax credit on importation of goods or
domestic purchase of goods or properties or
services by a VAT-registered person shall be
creditable:
1. To the importer upon payment of VAT prior to the
release of goods from customs custody.
2. To the purchaser of the domestic goods or
properties upon consummation of the sale.
3. To the purchaser of services or the lessee or
licensee upon payment of the compensation,
rental, royalty or fee.

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E X C E S S I N P U T V AT

4. To the purchaser of real property under: a. the taxpayer is VAT registered;

a. Cash/Deferred Payment Basis – upon
consummation of sale.
b. Installment Basis – every installment payment
(NIRC, Sec. 110[2]).
Required Supporting Documents (RR No. 16-05):
Transaction Required Documents
Input taxes on
domestic purchases of VAT invoice
goods or properties
Input Tax on Purchases of Real Property:
Public Instrument (i.e.,
deed of absolute sale,
deed of conditional sale,
contract/ agreement to sell,
Cash/Deferred basis etc.) together with the VAT
invoice for the entire selling
price and Non-VAT ORs
for the initial and
succeeding payments
Public instrument and VAT
Installment basis
OR for every payment
Input tax on domestic
VAT OR
purchases of services
Import entry or other
equivalent document
Input tax on
showing actual payment of
importation of goods
VAT on the imported
goods
Inventory of goods as
Transitional input tax shown in a detailed list to
be submitted to the BIR.
Input tax on “deemed
Required invoices
sale” transactions
Monthly Remittance Return
of Value Added Tax
Input tax input tax from Withheld (BIR Form 1600)
payments made to filed by the resident payor
non-residents (such as in behalf of the non-
for services, rentals, resident evidencing
or royalties) remittance of VAT due
which was withheld by the
payor
Payment order showing
Advance VAT on
payment of the advance
sugar
VAT
Claims for Refund/Tax Credit Certificate of Input
Tax
1. Zero-Rated and Effectively Zero-Rated Sales of
Goods, Properties or Services (NIRC, Sec.
112[A])
To claim refund or tax credit, claimant must
comply with the following criteria:
b. the taxpayer is engaged in zero-rated or
effectively zero-rated sales;
c. the input taxes are due or paid;
d. the input taxes are not transitional input taxes;
e. the input taxes have not been applied against
output taxes during and in the succeeding
quarters;
f. the input taxes claimed are attributable to zero-
rated or effectively zero-rated sales;
g. for zero-rated sales under Secs. 106[A][2][1]
and [2]; 106[B]; and 108[B][1] and [2], the
acceptable foreign currency exchange proceeds
have been duly accounted for in accordance
with BSP rules and regulations;
h. where there are both zero-rated or effectively
zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and
entirely attributable to any of these sales, the
input taxes shall be proportionately allocated on
the basis of sales volume; and
i. the claim is filed within two years after the close
of the taxable quarter when such sales were
made (in contrast with the period of filing an
action to recover taxes already paid which is
reckoned from the date of payment).
Note: Failure to print the word “zero-rated” on the
invoices or receipts is fatal to a claim for credit of
refund of input VAT on zero-rated sales (J.R.A.
Philippines, Inc. v. CIR, G.R. No. 177127, October
11, 2010).
If engaged in transport of passenger and cargo by
air or sea vessels from Philippines to a foreign
country, input taxes are allocated ratably between
zero-rated and non-zero rated sale (subject to
regular rate, final withholding VAT and VAT-exempt
sales) (RR No. 16-2005, Sec. 4.112-1).
2. Cancellation of Registration (NIRC, Sec.
112[B])
a. A VAT-registered person may apply for the
issuance of tax credit certificate for any unused
input tax within two (2) years from the
cancellation of registration. Such tax credit
certificate may be used in the payment of other
internal revenue taxes.
b. Cancellation of Registration due to:
i. Retirement from or cessation of business; or
ii. Change in or cessation of status
c. The taxpayer shall be entitled to a refund if he
has no internal revenue tax liabilities against
which the tax credit certificate may be utilized.
d. In the case of claims for refund of unutilized
VAT on account of cessation of business, the
two-year period shall commence from the date
of cancellation of registration of the taxpayer,

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and not from the close of the taxable quarter
when the sales were made (Associated Swedish
Steels Phils., Inc., v. CIR, CTA Case No. 7850,
August 23, 2012).
e. Section 236[2][b] of the NIRC, as amended
provides that the cancellation of registration will
be effective from the first day of the following
month.
3. Manner and Period within which Refund or Tax
Credit of Input Taxes shall be Made (NIRC,
Sec. 112[C])
a. Filed with the appropriate BIR Office-Large
Taxpayers Service (LTS) or RDO having
jurisdiction over the principal place of business
of the taxpayer.
b. Refunds shall be made upon warrants drawn by
the Commissioner or by his duly authorized
representative without the necessity of being
countersigned by the Chairman of the
Commission of Audit.
c. The application for tax credit or refund for
creditable input tax shall be decided by the
Commissioner within one hundred twenty (120)
days from the submission of documents in
support of the application.
The CIR shall grant a refund or issue the TCC
for creditable input taxes within one hundred
twenty (120) days from the date of submission
of complete documents to grant or deny a
taxpayer’s application for refund or tax credit of
excess input tax and only after the lapse of this
period without any action on her part that the
aggrieved party may, within thirty (30) days,
elevate the case to the Court of Tax Appeals
(CTA). Prior to such period, the CTA has no
competence, with all due respect, to entertain
the appeal (Mindanao I Geothermal Partnership
v. CIR, CTA EB 956 re CTA Case No. 8247,
September 16, 2013).
The failure of a taxpayer to wait for the decision
of the Commissioner of Internal Revenue or the
lapse of the 120-day period will render the filing
of the judicial claim with the Court of Tax
Appeals premature (Nippon Express
(Philippines) Corp., v. CIR, G.R. No. 196907.
March 13, 2013).
d. In case of denial or the inaction of the
Commissioner within the period prescribed, the
taxpayer may appeal the decision or unacted
claim within thirty (30) days from the receipt of
the same or after the expiration of one hundred
twenty (120) days to the Court of Tax Appeals
(CIR v. Aichi Forging Comp. of Asia, Inc., G.R.
No. 184823, October 6, 2010).
e. A claimant for a input VAT refund/credit should
wait for the decision of the CIR or the lapse of
the 120-day period under Sec. 112[C] of NIRC
before filing an appeal with the CTA, even if the
2-year prescriptive period under Sec. 112[A] of
NIRC for filing an administrative claim for VAT
refund will soon lapse.
In the case of Commissioner of Internal
Revenue v. Aichi Forging Company of Asia, Inc.
(G.R. No. 184823, October 6, 2010), the SC
held that the phrase “within two (2) years x x x
apply for the issuance of a tax credit certificate
or refund” in Sec. 112[A] refers to applications
for refund/credit filed with the CIR and not to
appeals made to the CTA. This is apparent
in the first paragraph of subsection (D) of the
same provision, which states that the CIR has
“120 days from the submission of complete
documents in support of the application filed in
accordance with Subsections (A) and (B)” within
which to decide on the claim.
Under Section 112[A] of the NIRC of 1997, as
amended, a taxpayer must file an application for
refund or tax credit of unutilized or excess
creditable input VAT attributable to its zero-rated
or effectively zero-rated sales within two (2)
years after the close of the taxable quarter when
the sales were made. (CIR v. San Roque Power
Corp., G.R. No. 197156, October 8, 2013).
In fact, applying the two-year period to judicial
claims would render nugatory Sec. 112[D] of the
NIRC, which already provides for a specific
period within which a taxpayer should appeal
the decision or inaction of the CIR. The second
paragraph of Sec. 112[D] of the NIRC envisions
two scenarios: (1) when a decision is issued by
the CIR before the lapse of the 120-day period;
and (2) when no decision is made after the 120-
day period. In both instances, the taxpayer has
thirty (30) days within which to file an appeal
with the CTA.
As we see it then, the 120-day period is crucial
in filing an appeal with the CTA and premature
filing of claim for refund/credit of input VAT
before the CTA warrants a dismissal inasmuch
as no jurisdiction is acquired by the CTA.
For input taxes to be available as tax credits, they
must be substantiated and reported in the VAT
returns following Sec. 4.110-8 of Revenue
Regulations No. 16-2005, as amended, otherwise,
a claim for refund shall be denied on the ground
that it was not recorded in the taxpayer’s VAT
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return (Coca-Cola Bottlers Philippines, Inc. v. CIR,
CTA Case No. 8136, May 15, 2013).
In a claim for tax refund or tax credit, the applicant
must prove not only entitlement to the claim but
also compliance with all the documentary and
evidentiary requirements therefor (J.R.A.
Philippines, Inc., v. CIR, G.R. No. 171307, August
28, 2013).
Note: Section 110[A][1] of the NIRC provides that
creditable input taxes must be evidenced by a
VAT invoice or official receipt, which must, in turn,
comply with Sections 237 and 238 of the same
law, as well as Section 4.108.1 of RR No. 7-95.
The foregoing provisions require, inter alia, that an
invoice must reflect, as required by law:
a. the BIR Permit to Print;
b. the TIN-V of the purchaser; and
c. the word “zero-rated” imprinted thereon.
In this relation, failure to comply with the said
invoicing requirements provides sufficient ground
to deny a claim for tax refund or tax credit.
4. Refund of Input VAT Prior to VAT Registration
Input VAT attributable to zero-rated sales incurred
by a taxpayer prior to its VAT registration may not
be the subject of refund. Under Sec. 112 of the
NIRC, one of the conditions for entitlement to
refund or tax credits of excess unutilized input tax
from zero-rated sales is that the taxpayer should
be a VAT-registered taxpayer. Thus, to be entitled
to refund of input VAT, the taxpayer refund-
claimant must prove that it was a VAT-registered
taxpayer during the period it incurred its unutilized
input VAT (JP Morgan Chase Bank, N.A. –
Philippine Customer Care Center v. CIR, CTA EB
Case Nos. 7650, 7681 and 7722, March 13,
2012).
Persons who are Required to Register:
1. Every person who is liable for payment of VAT
shall register as a VAT Person.
2. Every person who is exempted from VAT shall
register as a Non-VAT Person/VAT Exempt
Person, unless he elects to be a VAT person.
3. Every person who is engaged in VATable and
exempt transaction must both register as VAT and
Non-VAT person.
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Registration as a VAT Person (NIRC, Secs.
236[G] and 236[H])
1. Mandatory – 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, is required to register if:
a. His gross sales or receipts for the past twelve
(12) months (other than those exempt
transactions) have exceeded P1, 919,500; or
b. There are reasonable grounds to believe that
his gross sales or receipts for the next twelve
(12) months (other than those exempt
transactions) will exceed P 1, 919,500.
2. Optional – Any VAT-exempt person may elect to
register as a VAT person by paying the annual
registration fee.
He shall not be entitled to cancel his registration
as a VAT person for the next three (3) years from
the quarter when the election was made.
Except: Franchise grantees of radio and TV
broadcasting whose annual gross receipts for the
preceding year do not exceed P10,000,000 whose
option is perpetually irrevocable (RR No. 4-2007,
Sec. 15).
Registration is an indispensable requirement under
our VAT law. However, it does not determine VAT
taxability. A taxable person who is required but
failed to register as a VAT person shall not be
entitled to claim any input tax credit, although he is
liable to output tax in his taxable sales once he
exceeds the limit set by the law.
The registration of income tax as a tax type does not
automatically carry with it the registration of VAT
and/or percentage tax as a covered/registered tax
type (RR No. 7-2012 dated April 2, 2012).
A VAT-registered person shall issue:
1. VAT Invoice – for every sale, barter or exchange
of goods or properties.
2. VAT Official Receipt – for every lease of goods
or properties and for every sale, barter or
exchange of services.
Only VAT registered persons are required to print
their Tax Identification Number (TIN) followed by the
word “VAT” in their invoice or official receipt, which
shall be considered the “VAT invoice” or “VAT OR”.
All purchases not covered by invoices/receipts other
than the VAT invoice/VAT official receipt shall not

give rise to any input tax (RR No. 16-2005, Sec.
4.113-1[A]).
Information contained in VAT invoice or receipt:
1. Statement that the seller is a VAT-registered
person followed by his TIN;
2. The total amount paid by the purchaser with the
indication that such amount includes VAT;
a. Amount of tax must be shown separately on the
receipt.
b. If the sale is exempt, the term VAT-Exempt
Sale must be written or printed prominently on
the invoice or receipt.
c. If the sale is subject to 0%, the term Zero-Rated
Sale must be written or printed prominently on
the invoice or receipt.
d. The appearance of the word "zero-rated" on the
face of invoices covering zero-rated sales
prevents buyers from falsely claiming input VAT
from their purchases when no VAT was actually
paid. If, absent such word, a successful claim
for input VAT is made, the government would be
refunding money it did not collect. If the claim for
refund/tax credit certificate is based on the
existence of zero-rated sales by the taxpayer
but it fails to comply with the invoicing
requirements in the issuance of sales invoices
(e.g., failure to indicate the TIN), its claim for tax
credit/refund of VAT on its purchases shall be
denied considering that the invoice it is issuing
to its customers does not depict its being a VAT-
registered taxpayer whose sales are classified
as zero-rated sales. Nonetheless, this treatment
is without prejudice to the right of the taxpayer
to charge the input taxes to the appropriate
expense account or asset account subject to
depreciation, whichever is applicable
(Panasonic Comm. Imaging Corp. of the Phil. v.
CIR, G.R. No. 178090, February 8, 2010).
e. If the sale involves goods, properties or services
some which are subject to VAT and some are
exempt or zero-rated, the breakdown of the sale
price between taxable, exempt, and zero-rated
components must be shown on the invoice or
receipt.
3. Date of the transaction, quantity, unit cost and
description of goods; and
4. In case of sales in the amount of P1,000 or more
and the sale is made to a VAT-registered person,
the name, business style, address and TIN of the
purchaser (RR No. 16-2005, Sec. 4.113-1[B]).
Consequences of Issuing Erroneous VAT
Invoice or Receipt
If a person who is not VAT-registered issues an
invoice or receipt showing his TIN, followed by the
word “VAT”, the erroneous issuance shall result to
the following:
1. The issuer shall, in addition to any liability to other
percentage tax, be liable to:
a. The twelve percent (12%) VAT without the
benefit of any input tax credit; and
b. A fifty percent (50%) surcharge.
2. The VAT shall be recognized as an input tax credit
to the purchaser, if the requisite information is
shown on the receipt or invoice.
3. 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 term “VAT-exempt sale” the
issuer shall be liable to account for the twelve
percent (12%) VAT as if the transaction is not an
exempt transaction. The purchaser shall be
entitled to claim an input tax credit on his
purchase (RR No. 16-2005, Sec. 4.113-4).
Failure or refusal to comply with the requirement
that the amount of tax shall be shown as a separate
item in the invoice or receipt, shall, upon conviction,
for each act or omission, be punished by a fine of
not less than P1,000 but not more than P50,000 and
suffer imprisonment of not less than two (2) years
but not more than four (4) years (RR No. 18-2011).
Invoicing requirement is mandatory in nature and,
consequently, for failure to present the proper
documents to prove the existence of its zero-rated
sales, its claim for refund of its unutilized or excess
of input taxes on its alleged zero-rated sales was
denied (Galileo Asia, LLC-Philippines v. CIR, CTA
Case No. 8134, August 22, 2012).
Invoicing and Recording Deemed Sale
Transactions:
1. Transfer, use or consumption not in the course of
business of goods or properties originally intended
for sale or use in the course of business – a
memorandum entry in the subsidiary sales journal
to record withdrawal of goods for personal use is
required.
2. Distribution or transfer to shareholders or
investors as share in the profits of the VAT-
registered persons or to creditors in payment of
debt; and consignment of goods, if actual sale is
not made within sixty (60) days following the date
such goods were consigned – an invoice which
includes all the Invoicing requirements. The data
appearing in the invoice shall be duly recorded in
the subsidiary sales journal. The total amount of
“deemed sale” shall be included in the return to be
filed for the month or quarter.
3. Retirement from or cessation of business with
respect to inventories on hand – an inventory shall
be prepared and submitted to the RDO who has
jurisdiction over the taxpayer’s principal place of
business not later than thirty (30) days after
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retirement or cessation form business. An invoice Time for Filing a Return

shall also be prepared for the entire inventory,
which shall be the basis of the entry into the
subsidiary sales journal. The invoice need not
enumerate the specific items appearing in the
inventory, but it must show the total amount. It is
sufficient to just make a reference to the inventory,
regarding the description of the goods. However,
the sales invoice number should be indicated in
the inventory filed and a copy thereof shall form
part of this invoice.
a. If the business is to be continued by the new
owners or successors, the entire amount of
output tax on the amount deemed sold shall be
allowed as input taxes.
b. If the business is to be liquidated and the goods
in the inventory are sold or disposed of to VAT-
registered buyers, an invoice or instrument of
sale or transfer shall be prepared, citing the
invoice number wherein the tax was imposed on
the deemed sale. At the same time, the tax paid
corresponding to the goods sold should be
separately indicated in the instrument of sale
(RR No. 16-2005, Sec. 4.113-2).
Every person liable to pay VAT shall file a:
th
1. Monthly return not later than the 20 day
following the end of each month; and
2. Quarterly return of the amount of his quarterly
gross sales or receipts within twenty five (25) days
following the close of the taxable quarter.
A VAT-registered person shall pay the value-added
tax on a monthly basis.
Taxable quarter shall mean the quarter that is
synchronized to the income tax quarter of the
taxpayer (i.e., calendar or fiscal year).
Amounts reflected in the monthly VAT declarations
for the first two (2) months of the quarter shall still be
included in the quarterly VAT return that reflects the
cumulative figures for the taxable quarter. Payments
in the monthly VAT declarations shall, however, be
credited in the quarterly VAT return to arrive at the
net VAT payable or excess input tax/over-payment
as of the end of a quarter.

The registration of any person who ceases to be

Who are required to file a VAT return:
1. Every person or entity who in the course of his
trade or business, sells or leases goods,
properties and services subject to VAT, if the
aggregate amount of actual gross sales or
receipts exceed P1,919,500 for any twelve (12)
month period;
2. A person required to register as VAT taxpayer but
failed to register;
3. Any person who imports goods;
4. Professional practitioners
a. Professional practitioners were formerly
exempted from VAT and pays only income tax.
b. However, on January 1, 2003, PPs were also
subject to either VAT or three percent (3%)
Percentage Tax (R.A. 7716 and 9010, which
were implemented by RR Nos. 1-2003 and 3-
2003).
c. Services of professional practitioners are
subject to:
i. VAT if the gross professional fees exceed
P1,919,500 for any 12-month period; or
ii. Three percent (3%) percentage tax if the
gross professional fees does not exceed
P1,919,500 for any 12-month period (RR No.
16-2005).
liable to a tax type shall be cancelled upon filing with
the RDO where he is registered, an application for
registration information update in a form prescribed
therefor (NIRC, Sec. 236[F]).
A VAT-registered person may cancel his
registration for VAT if:
1. He akes written application and can demonstrate
to the CIR’s satisfaction that his gross sales or
receipts for the following twelve (12) months, other
than those that are exempt transactions, will not
exceed P1,919,500; or
2. 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.
The cancellation of registration will be effective from
the first day of the following month.

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B IR F O R M S - V AT

Monthly VAT Declarations:

1. Tax Form: BIR Form 2550M
2. Documentary Requirements:
a. Duly issued Certificate of Creditable VAT
Withheld at Source (BIR Form No. 2307), if
applicable;
b. Summary Alphalist of Withholding Agents of
Income Payments Subjected to Withholding Tax
At Source (SAWT), if applicable;
c. Duly approved Tax Debit Memo, if applicable;
d. Duly approved Tax Credit Certificate, if
applicable;
e. Authorization letter, if return is filed by
authorized representative.
3. Procedures:
Fill-up BIR Form No. 2550M in triplicate copies
(two copies for the BIR and one copy for the
taxpayer);

Quarterly VAT Returns:

1. Tax Form: BIR Form 2550Q
2. Documentary Requirements: Same as that of
Monthly VAT Declarations but with previously filed
return and proof of payment, for amended return
in addition.
3. Procedures: Fill-out BIR Form 2550Q in triplicate
copies (two copies for the BIR and one copy for
the taxpayer).

SAN BEDA COLLEGE OF LAW 161

2014 CENTRALIZED BAR OPERATIONS