OUTPUT VAT

Chapter 6/7/8
 VALUE ADDED TAX MODEL
• Tax Credit Method

Output VAT xxx.xx

Less: Input VAT xxx.xx

VAT Due xxx.xx

Less: Tax credits xxx.xx

VAT still due/payable xxx.xx

12% VAT VS 0%VAT VS EXEMPT
 REGULAR OUTPUT VAT
Taxable Transaction Tax Basis
Sale of goods Gross selling price, unless unreasonably lower
Sale of service Gross receipts
Sale of properties Gross selling price as defined by the BIR
Transaction deemed sales Fair value of the property deemed sale
 SALE OF VATABLE GOODS
• 12% VAT based on gross selling price, unless unreasonably lower.

• Timing – reported in the month of sale

• Unreasonably lower selling price:

• The gross selling price is lower by more than 30% of the actual market value of the
goods.
• The 12 % VAT should be based on the fair value of the goods sold

• If one of the parties is the government, the output VAT shall be based on the actual
selling price – unreasonably lower selling price does not apply here
 ILLUSTRATION
• Mr. X, a VAT seller, made the following sales of goods to customers during
the month:
Customer Selling price Fair Value
Customer D 250,000 300,000
Customer E 150,000 100,000
Customer F 124,000 200,000
Angeles City Hall 60,000 120,000

• Compute the Output tax

 SALE OF VATABLE SERVICES
• 12% VAT based on the gross receipts, net of VAT or 12/112 of the total invoice
amount, gross of VAT
• Sales of domestic common carriers by air and sea relative to transport of passengers,
goods or cargoes
• Sale of domestic common carriers by land relative to transport of goods or cargoes
• Sale of electricity by generation/transmission/distribution companies
• Sale of franchise grantees other than radio/television broadcasting and gas/water
utilities
• Non-life insurance companies
• Lease of properties
• Dealers in securities
• Pre-need companies
• HMOs

• Timing – reported in the month of collection

 SALE OF VATABLE PROPERTIES
• Sale of real properties (a) held primarily for sale to customers, or (b) held for lease in the ordinary
course of trade or business of the seller, or (c) used in trade or business,

• 12% of the gross selling price.

• Gross selling price (GSP) shall be the highest of:

• Selling price in the sales document; or
• Zonal value; or
• Assessor’s value

• If the GSP is based on the zonal value or assessor’s fair value – presumed exclusive of VAT

• If the GSP is based on the consideration appearing in sales document – presumed inclusive of VAT

• Unreasonably lower selling price does not apply to sale of property

 ILLUSTRATION
• XYZ Corporation, a VAT-registered realty dealer, sold the following residential
properties during February 2020:

Property Zonal Value Assessed Value Selling Price

Residential lot A 6,000,000 7,000,000 8,960,000
Residential lot B 500,000 1,000,000 672,000
Commercial lot A 800,000 1,500,000 1,904,000
House and lot A 12,000,000 20,000,000 17,920,000
House and lot B 3,000,000 2,500,000 2,240,000
 SALE OF VATABLE PROPERTIES
• Per the TRAIN Law, effective 01 January 2021, the VAT exemption for residential lots
no longer applies. Hence, the VAT threshold of P1,919,500 is only applicable before
January 1, 2021

• Sale of real property by a realty dealer thru cash – the fair value or gross selling price
whichever is higher is subject to VAT in the month of sale

• Sale of real property by a realty dealer on a deferred payment basis

• If the initial payment does not exceed 25% of the selling price – Output VAT may be
reported in installment basis
• If the initial payment exceeds 25% of the selling price – treated as cash sales and the
output VAT will be reported in the month of sale

• (Initial payment = Down payment + Installment payments)/Selling Price (exclusive of

VAT)
 SALE OF VATABLE PROPERTIES
• Sale of real property by a realty dealer on a deferred payment basis
• If the initial payment does not exceed 25% of the selling price – Output VAT may
be reported in installment basis

• The computation of Output VAT on deferred payment basis if it does not exceed
25%

• Payments/Selling Price x Output VAT

 ILLUSTRATION
• On September 1, 2020, XYZ realty dealer sold a commercial lot with the
following data:

• Zonal value, P9,000,000

• Assessors value, P8,000,000
• Selling price, 7,000,000

• A downpayment of 1,000,000 was paid with the balance due in 24 monthly

installment of P250,000 starting October 1,2020.

• Compute the output tax

 SALE OF VATABLE PROPERTIES
• The sale of adjacent residential lots, house and lots and other residential
dwellings within 12-month period in favor of one buyer, which will be treated
as one, total of which exceeds the threshold of respective property is subject
to VAT.

• Sale of parking lots are subject to VAT

• Interest and penalties actually or constructively received by the seller are

also subject to VAT
 TRANSACTIONS DEEMED SALES
1. Transfer, use, or consumption not in the course of business
2. Distribution or transfer of goods or properties
3. Transmission of property held for sale as a donation (completed gift)
4. Consignment of goods if actual sale is not made within sixty (60) days following the
date such goods were consigned.
5. Retirement from or cessation of business with respect to inventories of
taxable/vatable goods (capital goods, stock-in-trade, supplies, materials) existing
as of such retirement or cessation, whether or not the business is continued by the
new owner.

Notes:
• In cases 1) to 4), the tax base is the market value
• In case 5), the tax base is the lower between acquisition cost or market value
 TRANSACTIONS DEEMED SALES
• Subsequent sale of goods or properties deemed sold shall not be subject to
VAT

• The concept and rules of deemed sales and the taxation of sale of ordinary
asset apply only to VAT taxpayers
 BILLING REQUIREMENTS OF OUTPUT
VAT
• The output VAT must be specifically indicated in the VAT invoice or receipt

• If not separately billed – the selling price or the consideration stated therein
shall be deemed inclusive of VAT (12/112 of agreed price)

• If the VAT is incorrectly billed, the total amount billed (Selling price plus
incorrect VAT) by the VAT taxpayer shall be deemed inclusive of the VAT –
recomputed as 12/112 of total amount billed
• Customer is billed for 100 pesos plus 10 output VAT. We need to recompute VAT
by using 110 x 12/112 = 11.79 is the OUTPUT VAT to be considered.
 ZERO-RATED SALES
• Does not result in output VAT, but the taxpayer is entitled to input VAT which
shall be available either as a tax credit or as a refund, IF taxpayer is VAT-
registered.

• IF not VAT-registered, the sales of the taxpayer will be considered VAT-

exempt sales.
 ZERO-RATED SALES OF GOODS
1. Export sales

• Direct exports – the sale and actual shipment of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement, paid for in acceptable foreign currency.

• Export sales denominated in Peso are logically exempt, if not acceptable as zero-rated, rather than
subject to 12% VAT

• Exempt sale of goods (i.e. agricultural and marine food products in original state) are only exempt for
domestic consumption but zero-rated for foreign consumption

• Deemed sales rule applies only on domestic consignment not on foreign consignment

• Sale of goods or properties, supplies, equipment and fuel to persons engaged in international
shipping or air transport operations
 ZERO-RATED SALES OF GOODS
2. Effectively zero-rated sales
• Sale of goods to persons whose exempt from direct and indirect taxes under
special laws or international agreements to which the Philippines is a signatory

• The seller is required to apply for an application of effective zero-rating with the
BIR to be considered zero-rated sale which is renewable every year

• The VAT reciprocity exemption on embassies and their personnel

• Generally, embassies and their qualified employees and dependents do not have indirect
tax exemption but may be exempt under principle of reciprocity
• They should be issued VAT Exempt Certifications (VECS) or VAT Exemption Identification
Cards (VEICS)
 ZERO-RATED SALES OF GOODS
• As clarified under Revenue Memorandum Circular (RMC)No. 24-2022, the
“cross border doctrine”, or the rule that the sales of goods/services by a VAT-
registered seller to registered enterprises inside the economic and freeport
zones were treated as constructive export subject to zero-percent (0%) VAT,
has been rendered inoperative.

• As such, sales to economic zones or tourism zones are not automatically

considered as zero-rated sales
 ZERO-RATED SALES OF GOODS
• These are not considered registered business
Registered enterprises though accredited or licensed by
Business Enterprise any of the Investment Promotion Agencies
(IPA) (i.e., PEZA, BOI)
• Customs brokerage
• Trucking services
• Forwarding services
Domestic Market
• Janitorial services
Registered Export Enterprise/
• Security services
Enterprise Registered Non-
• Insurance
Export Enterprises
• Banking and other financial services
• Credit unions
• Consumer’s cooperatives
Sale to these Sale to these • Consultancy services
entities are subject entities are subject • Retail enterprises
to 0% VAT to 12% VAT • Restaurants
 ZERO-RATED SALES OF GOODS
What are considered zero-rated sales according to the passage of CREATE (Corporate
Recovery and Tax Incentives for Enterprises) Act?
3. Sale of raw materials, inventories, supplies, and equipment, packaging materials
and goods, to a registered export enterprise regardless of location, to be used
directly and exclusively in its registered project or activity.

• “Direct and exclusive use in the registered project or activity" – those that are directly
attributable to the registered project or activity without which the registered project
or activity cannot be carried out“
• Registered export enterprises should adopt a method for allocating local purchases
between those used in the registered export enterprise's registered project or activity
and for administrative purposes.
• If the local purchases are used in both the registered export enterprise's registered
project or activity and for administrative purposes and the proper allocation cannot
be made, the local purchase will be subject to the 12% VAT.
 ZERO-RATED SALES OF GOODS
• For the purchase of goods to be considered zero-rated, prior to the
transaction, the registered export enterprise must provide the following
documents to their suppliers

• BIR Certificate of Registration (BIR Form No. 2303)

• Certification of registration and VAT Certification issued by the concerned
Investment Promotion Agencies (IPA)
• Sworn declaration that goods and services being purchased shall be used
directly and exclusively in the registered project
 ZERO-RATED SALES OF SERVICES
1. Sale of services to non-residents
• Services must be performed in the Philippines
• Must be paid in acceptable foreign currency

2. Effectively zero-rated sales of services

3. Services rendered to persons engaged in international shipping and air transport

operations

4. Transport of passengers and cargo by domestic air or sea carriers from Philippines
to a foreign country
International Operation
Types of Carriers Domestic Operation
Outgoing (PH to Abroad) Incoming (Abroad to PH)
Domestic carrier 12% VAT 0% VAT Exempt
 ZERO-RATED SALES OF SERVICES
5. Sale of power or fuel generated through renewable sources of energy

6. Sale of services, including provision of basic infrastructure, utilities, and

maintenance, repair and overhaul of equipment, to a registered export
enterprise, to be used directly and exclusively in its registered project or
activity. (amended in Revenue Regulations No. 21-2021)
• Expenses for administrative purposes, also legal, accounting and similar services,
are excluded from the definition