Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
OVERVIEW
1. Introduction to Consumption Taxes
2. The Value Added Tax on Importation
3. Introduction to Business Taxation
4. Exempt Sales
5. The Percentage Tax
6. Introduction to the Value Added Tax
7. Output VAT – Regular Sales
8. Output VAT – Zero-Rated Sales
INTROUDCTION TO CONSUMPTION TAXES
The Concept of Consumption and
Consumption Tax
Consumption
- The acquisition or utilization of goods or
services by any person
- Levied without regard to the purpose of
the purchaser or consumer whether it is
for business, personal or charity use.
Consumption Tax
- Utilization is subject to a tax
Rationale of Consumption Tax
1. Savings formation
- Income is normally destined toward
consumption
- Savings = income – consumption
- Savings is a capital that is useful in
funding projects crucial to economic
activities that could spur further
economic development
2. Rationalization of the Benefit Received
Theory
- Proposes that those who receive more
benefit from the government should pay
more taxes
3. Wealth redistribution to society
- Basic state policy to redistribute wealth to
society so everyone in the State could
enjoy the same
A caveat to consumption tax
- It should not be levied upon basic
necessities such as food, education,
health, and shelter or housing
Destination Principle
- Taxation is inherently territorial, our
government can only impose tax upon
domestic consumption
- Only goods and services destined for
consumption in the Philippines are
subject to consumption tax while those
destined for consumption abroad are not
subject to consumption tax
Cross-border doctrine
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- Goods that cross the border destined for
foreign countries are not charged
consumption taxes.
- Government do no impose taxes on
exports
Types of Domestic Consumption as to source
1. Domestic sales – purchases from
resident sellers
2. Importation – purchases from abroad by
non-residents
Consumption Tax on Domestic Sales
- Business tax - domestic consumption of
resident buyers from resident sellers
commonly known as purchase is subject
to a consumption tax
- Indirect tax – an application of the
principle of administrative feasibility in
taxation
Consumption tax on Importation
- VAT on importation – domestic
consumption of goods or services from
non-resident sellers commonly known as
importation is subject to a consumption
tax
Types of Consumption Taxes
1. Percentage Tax – tax of various rates from
0.60% to 30%
2. Value Added Tax – a consumption tax of
12%
3. Excise Tax – ad valorem or specific tax,
imposed in addition to VAT or percentage
tax, only on certain goods or servces
Types of Domestic Consumption as to
Taxability
1. Exempt consumption – consumption of
goods or services that are not subject to
consumption taxes
2. Consumption specifically subject to
percentage tax – consumption of
services that are not subject to VAT but
are imposed with a specific percentage
tax
3. Vatable consumption – all other
consumption that are neither exempted
nor subject to percentage tax
Exempt Consumption
- Neither subject to percentage tax nor
value added tax.
Basis of exemption from consumption tax
Basis of VAT on Business Tax
exemption Importation
Human The goods The goods
 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
necessity imported is a services or international agreement to which the
human property sold Philippine government is a signatory are
necessity is a human exempt from the VAT on importation and
necessity business tax, respectively
Out of scope The The seller is Services specifically subject to Percentage
of tax importation not engaged Tax
does not in business - Taxable consumption of services but
constitute a subject only to a specific percentage tax
domestic rate set by the NIRC; consumptions = not
consumption subject to VAT
Tax The The sales or Vatable Importation or Sales
incentive importation is receipt is - All other importation or sales of either
exempted as a exempted as a goods or services that are not exempted
tax incentive tax incentive or specifically imposed a percentage
to certain to certain taxable is vatable
importers sellers The Structure of the VAT on Importation
International The The sales or Import of services
comity importation is receipts is a. Exempt
exempted by exempted by b. Subject to percentage tax
treaty treaty c. Subject to final withholding VAT
Import of goods
Human necessity a. Exempt
- Certain basic necessities such as natural b. Subject to VAT on importation
necessities such as natural agricultural or The Structure of the Business Tax
marine food products, agricultural inputs, Sales of services
books, newspapers and magazines, a. Exempt
residential properties; and medical b. Specifically subject to a percentage tax
services of hospitals are exempt; not c. Vatable
taxable Sales of goods
Out of scope of the consumption tax a. Exempt
VAT on Importation Business Tax b. Vatable
The bringing of goods Domestic
to the Philippines consumption from Vatable sales or receipts are subject to 12% VAT
which represents businesses only if the taxpayer is a VAT taxpayer and to a 3%
current domestic general percentage tax if the taxpayer is a non-
consumption VAT taxpayer.

Scope of VAT importation VAT on Importation vs. VAT on Sales in

- Applies to current purchase or acquisition Business Tax
of goods or services by a resident person VAT on Importation
from non-resident persons - Directly computed on the landed costs or
total purchase costs of importation
Scope of Business Taxes without any deduction or tax credit
- Only sales or receipts of persons engaged VAT imposed on Sales
in business is subject to business tax - Theoretically imposed on the value
- Not a business = no business tax added-the amount of mark-up imposed by
Tax incentives sellers on their purchase costs
- Certain importations are not subjected to Output VAT (12% of sales or receipts) xxx
the VAT on importation for some reasons Less: Input VAT (12% VAT paid on xxx
- Certain institutions are not subject to purchases)
business taxes for some reasons VAT due xxx
International Comity
- Importation or sales of goods or services The Excise Tax
that are agreed to be exempted in an

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 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
a. Sin products such as alcohol and
cigarettes
b. Non-essential commodities, such as
automobiles and jewelry
c. Non-essential services, such as cosmetic
surgery
d. Environmentally degrading products
Excise Tax
- An additional imposition to VAT or
percentage tax
- On excisable goods, it is normally
imposed before the goods are sold by
domestic producers or upon their
importation by importers
THE VALUE ADDED TAX ON IMPORTATION
Importation
- Purchase of goods or services by
Philippine residents from non-resident
sellers
Types of Consumption Tax on Importation
1. VAT on Importation – for the import of
goods
2. Final withholding VAT – for the purchase
of services from non-residents
Comparison between the Consumption Tax
on Importation
Vat on Importation – payable to the Bureau of
Custom and is paid prior to the withdrawal of the
goods from the customs warehouse.
Final withholding tax – 12% of the contract
price
Import of Goods
1. Exempt Importation
2. Vatable Importation
Exempt Importation
A. Importation of exempt goods
Basic necessities not subject to VAT
1. Original state of agricultural and
marine food
2. Fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and
poultry feeds, including ingredients
used in the manufacture
3. Books and any newspaper, magazine,
review, or bulletin which appear at
regular intervals with fixed prices for
subscription and sale which is nor
devoted principally to the publication
of paid advertisement
4. Passengers or cargo vessels and
aircrafts, including engine, equipment
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and spare part thereof for domestic or
international transport operations
B. Importation by VAT-exempt persons
1. International shipping or air transport
on their import of fuel, goods and
supplies
2. Cooperatives of direct farm inputs,
machineries and equipment
3. PEZA locators on their import of
goods or services
C. Quasi-importation
1. Personal and household effects
belonging to residents of the
Philippines returning from abroad and
non-resident citizens coming to
resettle in the Philippines
2. Professional instruments and
implements, wearing apparel,
domestic animals, and personal
household effects belonging to
persons coming to settle in the
Philippines, for their own use and not
for sale, barter or exchange.
D. Importation which are exempt under
special laws and international
agreement
The VAT on Importation
1. Importer is engaged or not engaged in
trade or business
2. Importer is a VAT or non-VAT business
3. Importation is for business or personal
use
4. Non-resident seller is engaged or not
engaged in business
Resumption of vatability
- Importation is generally subject to VAT
unless it can be proven as exempt under
any of those conditions discussed herein
or under a provision of a special law or
treaty.
Tax basis of the VAT on Importation
- Computed as 12% of the total landed cost
of the importation
Import of Services
1. VAT-exempt
2. Subject to specific percentage tax
3. Subject to final withholding VAT
Nature of the Final Withholding VAT
- Domestic consumption by anybody of
services from abroad should be subject to
VAT regardless of the place where the
service is rendered
 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
- Non-residents cannot be obligated to file
tax returns due to territorial
considerations, the resident buyer is
obligated to withhold the VAT and to
remit the same to the government
VAT-Exempt Import of Services
a. Purchase of services from non-residents
when the service is rendered abroad
b. Purchase of services from non-residents
when the individual purchase is not
engaged in business
c. Purchase of services from non-residents
by VAT-exempt persons such as ecozone
locators
Import of Services specifically subject to
Percentage Tax
- Direct acquisition of insurance cover from
abroad
- Subject to a 5% tax
Vatable Import of Services
- Computed as 12% of the contract price
- All other of import or services is subject
to final withholding VAT
Vatable import of services
1. Lease or use of properties or property
rights owned by non-residents
2. Services rendered to local insurance
companies, with respect to reinsurance
premiums payable to non-residents
3. Ither services rendered in the Philippines
by non-residents
Payment of the withholding VAT
- BIR Form 1600, withholding VAT is
remitted monthly on or before the 10th
day of the following month after the
withholding was made, except for taxes
withheld for December which shall be
filed or paid on or before January 25 of
the following year
Treatment of the VAT on importation and the
Withholding VAT
1. If the resident purchaser is a VAT-
registered business, it can claim the VAT
on importation or withholding VAT as
input VAT creditable against its output
VAT
2. If the resident purchaser is a non-VAT
business, the VAT on importation or final
withholding VAT shall be part of the cost
if purchases of goods or services and shall
be treated as asset or expense
3. If the purchaser is not engaged in
business, the VAT on importation is
merely added to the costs of the goods
imported
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INTRODUCTION TO BUSINESS TAXATION
Nature of Business Tax
1. Relative Consumption Tax – a tax on the
consumption of goods or services and is
imposable only when the seller is a
business
2. Indirect Tax – collected from the seller
rather than from the buyer-consumer
3. Privilege Tax – also viewed as a tax on
the privilege to do business
4. National Tax – imposed by the
governement
What is Business?
Business
- A habitual engagement in a commercial
activity involving the sale of goods or
services for a profit
Elements of business
Habitual Engagement
- Regularity in transaction
- Normally manifested by a registration
with the appropriate government
agencies as a dealer or as a service
provider in a particular trade or vacation
but non-registration is not an excuse to
business taxation
Privilege stores
- Tiangge
- Stalls or outlets not permanently fixed to
the ground which are put up during
special events such as festivals or fiestas
Privilege store operators
- Shall not be habitually engaged in
business considering their limited activity
Exception to the regularity rule
- Sales of services by non-resident persons
are presumed made in the course of
business without regard as to whether the
sale is regular or isolated
Commercial Activity
- Engagement in the sale of goods or
services for a profit
- With a motive to earn unrestricted
amount of pecuniary gains
Examples of not business:
1. Government agencies and
instrumentalities
2. Non-profit organizations or associations
3. Employment
4. Directorship in a corporation
5. Business for mere subsistence
Marginal Income Earners
- Individuals not deriving compensation
income under an employer-employee
 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
relationship but who are self-employed
deriving gross sales or receipts not
exceeding P100,000 in any 12-month
period
- Do not include licensed professionals,
consultants, artists, sales agents, brokers,
and others subjected to withholding tax
Examples of marginal income earners:
1. Subsistential farmers or fisherman
2. Small sari-sari stores
3. Small carinderias or “turo-turos”
4. Drivers or operations of a single unit
tricycle
5. Others similarly related
Examples of persons considered engaged in
business:
1. Consultants
2. Sales agents of insurance or real estate
including brokers
3. Television or movie talents and artists
4. Cooking instructions
5. Martial art instructors
Business Taxpayers
- Includes any individual, trust, estate,
partnership, corporation, joint venture,
cooperative or association
Income tax exemption does not equate to
business tax exemption
- Income tax exemption does not
necessarily mean business tax exemption
Exempt taxpayers from income tax subjected
to business tax:
1. General professional partnership
2. Joint venture engaged in construction or
oil exploration
3. Local water districts
4. Barangay micro-business enterprise
Types pf Business Taxpayers
1. VAT taxpayers
2. Non-VAT taxpayers
Business Activities
- Tax differs
Type of business activities:
1. Sales or exchange of goods or properties
2. Sales of exchange of services or lease of
properties
Sales of Goods or Properties
- All tangible and intangible objects which
are capable of pecuniary estimation
Sale or Exchange of Services
- Th performance of all kind of services in
the Philippines for others for a fee,
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remuneration or consideration, whether
in kind or cash
Constructive Receipt
- The money consideration or its
equivalent is placed at the control of the
person who renders the services without
restriction by the payor
Agency Monies
- Amounts earmarked for payment to an
unrelated third party or received as
reimbursement for advanced payment on
behalf of another
Insurance proceeds on damaged assets
- Not viewed as sales or receipts for
purposes of business taxation
Withholding taxes
- Constructive possession and not subject
to any reservation
Business with Mixed Activities
- Engaged both in the sales of goods or
properties and sales of services shall be
subject to business tax on gross selling
prices.
Exempt sales or receipts
- Not subject to business tax
Vatable sales or receipts
1. 3% general percentage tax – non-VAT
registered
2. Value added tax – VAT taxpayers
Types of percentage tax
1. Specific percentage tax – apply to any
taxpayer
2. General percentage tax – for vatable sales
or receipts of non-VAT taxpayers
EXEMPT SALES OF GOODS, PROPERTIES, &
SERVICES
Exempt Sales
- Exempt consumption of goods or services
from domestic sellers
- Not subject to VAT and percentage tax
Exempt Sales of services
1. Schools
2. Employees
3. Agricultural contract growers and millers
4. Residential leasing
5. Cooperative services
6. Hospitals
7. Homeowner’s association or
condominium corporations
8. Leaser passenger or Cargo vessels and
aircrafts, including engine, equipment and
spare parts thereof for domestic or
international transport operations
9. Treaty-exempt services
 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
10. Regional area headquarters
11. International carriers
12. Printers or publishers
13. Senior citizens and persons with
disability
Sales of goods or services covered by special
laws
1. Sales by ecozone locators – subject to a
special 5% gross income tax; not subject
to VAT or percentage tax
2. Receipts of proprietors of theaters or
cinemas
PERCENTAGE TAX
Percentage tax
- National tax measured by a certain
percentage of the gross selling price or
gross value in money of goods sold or
bartered
Non-VAT taxpayers
- Those who did not exceed the VAT
threshold and who did not register as VAT
taxpayers
Services specifically subject to percentage tax
1. Banks and non-bank financial
intermediaries
2. International carriers on their transport
of cargoes, excess baggage and mails only
3. Common carriers on their transport of
passengers by land and keepers of garage
4. Certain amusement places
5. Brokers in effecting sales of stocks
through the Philippine Stock Exchange
and corporations or shareholders on
initial public offerings
6. Certain franchise grantees
7. Life insurance companies and agents for
foreign insurance
8. Telephone companies on overseas
communication
9. Jai-alai and cockpit operators on winnings
Quasi-Baking Function
- Borrowing of funds from twenty or more
personal or corporate lenders at any one
time
Non-bank intermediaries with quasi-banking
functions
1. Pawnshops
2. Money changers
Common rules for banks, quasi-bank, and
other
1. Accounting rules
a. Bangko Sentral ng Pilipinas – banks
and quasi-banks
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b. Securities and Exchange
Commission – other non-bank
intermediaries
2. Finance lease and operating leases
a. Finance lease – sale of property
whereby the seller earns only interest
income on the arrangement
b. Operating lease – not a sale and does
not transfer ownership over the
leased property
Percentage tax on international carriers
1. International air carriers
2. International ship carriers
International carriers
- Air or sea carriers owned by foreign
corporations that operate in the
Philippines and transport passengers or
cargoes from the Philippines to overseas
and vice versa
Percentage tax on domestic carriers and
keepers of garage
Common carrier
- Any person, corporation, firm, or
association engaged in the business of
carrying or transporting passengers
and/or goods and offering their services
to the public
Amusement taxes
- Gross receipts embrace all receipts of the
proprietorship, lessee or operator of the
amusement places
Stock transaction tax
- 60% of 1% based on gross selling price or
value in money of the shares of stocks
sold
Closely held corporation
- Any corporation at least 50% in the value
of the outstanding capital stock or at least
50% of all classes of stocks entitled to
vote is owned directly or indirectly by not
more than 20 individuals
1. Primary offering – unissued shares of
the closely held corporation to be sold in
the IPO
2. Secondary offering – issued shares or
shared of existing shareholders who wish
to sell their shares in the IPO
Follow-through offering
- Subsequent sale after the IPO
Tax on Franchises
- Vatable
Subject to percentage tax
 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
1. Radio or television broadcasting 2. Receipts from services specifically
companies while annual gross receipts do subject to percentage tax
not exceed P10,000,000 – 3% VAT taxpayers
2. Gas and water utilities – 2% 1. VAT-registered persons - subject to VAT
Vatable franchises even if its annual sales do not exceed the
1. Electricity VAT threshold
2. Telecommunications 2. VAT-registrable persons – those whose
3. Transportation sales or receipts exceed the VAT
4. Private franchises threshold without registering as VAT
Tax on Life Insurance Premiums taxpayers are subject to VAT without the
- A person, company or corporation doing benefit of an input tax credit
life insurance business of any sort in the VAT Taxpayers with Mixed Transactions
Philippines is subject to a tax of 2% - VAT shall apply only to the vatable sales
or receipts
Life insurance company
- Deals with the insurance on human lives The Value Added Tax Model
and insurance appertaining thereto or Output VAT
connected therewith - VAT on the vatable sales or receipts
Types of insurance business - Presumed passed on by the seller on his
1. Direct insurance – underwrites sales or receipts
insurance policy and negotiates them to Output VAT xxxx
policyholders through insurance agents Less: Input VAT xxxx
2. Reinsures – insurers of insurers VAT due xxxx
3. Retrocessionaires – insurers of Less: Tax credits xxxx
reinsurers VAT still due xxxx
Taxation of other receipts of life insurance Types of Output VAT
business 1. Regular Output VAT – 12% VAT
1. Renewal or re-insurance fee, re- imposed on domestic sales or receipts
instatement fee and penalties 2. Zero Output VAT – 0% VAT imposed pn
2. Management fees, rental income, or other export and other zero-rated sales
income from unrelated services Input VAT
3. Investment income - Paid by the taxpayer on the domestic
Tax on agents of foreign insurance purchases from VAT suppliers or on the
- Fire, marine or miscellaneous insurance importation of goods or services in the
agents authorized under the Insurance course of business
Code to produce policies of insurance on VAT due
risks located in the Philippines for - At the end of each month, the input VAT is
companies not authorized to transact offset with the output VAT
business in the Philippines are subject to - Positive VAT = paid to the BIR
a tax equal to twice the tax imposed - Negative VAT = non-refundable but
Direct insurance from abroad carried over
- Property owners obtain insurance Sales subject to special VAT rules
directly from abroad with the services of 1. Sales to the government
an insurance agent, the tax shall be 5% of 2. Zero-rated sales
the premium paid. 3. Exempt sales
Classification of sales or receipts for VAT
INTRODUCTION TO THE VALUE ADDED TAX purposes
The value added tax 1. Sales to the government
- VAT covers all vatable sales of goods, 2. Zero-rated sales
properties, services, or lease of properties 3. Exempt sales
by VAT taxpayers 4. Regular sales – covers all sales of goods,
Vatable sales or receipts are from sources properties or services other than:
other than: a. Sales to the government or GOCCs
1. Exempt sales b. Zero-rated sales

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 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
c. Exempt sales
Other sales subject to VAT
1. Sales of registrable persons
2. Sales of non-VAT taxpayers who issues
VAT invoice or receipt
3. Exempt sales that are billed through a
VAT invoice or VAT receipts will be
considered as regular sales
THE REGULAR OUTPUT VAT
Sources of Regular Output VAT
1. Sale of vatable goods – subject to 12%;
based on gross selling price
2. Sale of vatable services
3. Sale of vatable properties
4. Transaction deems sales
Timing of Output VAT reporting
- Reported in the month of sale
Sale of Vatable services
- Subject to 12% VAT based on the gross
receipts
Timing of Output VAT reporting
- Reported in the month of collection
Sale of Vatable properties
- Subject to VAT on the gross selling price
a. Consideration or selling price
b. Fair value of the property
Comparison of the VAT on goods and VAT on
properties
- Selling price or consideration on the sale
of property is legally presumed VAT
inclusive
Timing of Output VAT reporting
- Reported in the month of sale or by
installment method
Installment reporting of Output VAT on real
properties
- May be reported in installment if the
initial payment from such sale if it does
not exceed 25% of the selling price
Sale of property by a realty dealer on a
deferred payment basis
- Not on the installment plan, shall be
treated as a cash sale
- Subsequent collections from the sale shall
no longer be subjected to VAT
Interest and penalties
- Actually or constructively received by the
seller are likewise subject to VAT
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Sale of properties considered “ordinary
assets”
- Shall be subject to VAT being a
transaction incidental to the taxpayer’s
main business
Sale of property not in the ordinary course of
business
- Exempt from VAT
Transaction Deemed Sales
- Involving goods or properties which are
consumption in nature but are not
coursed through a purchase transactions
Transfer, use or consumption not in the
ordinary course of business
- Vatable ordinary asset
1. Goods or properties held for sale
2. Properties originally intended for use
Consignment of goods not withdrawn in 60
days
- If not withdrawn within 60 days, are also
presumed or deems sold subject to VAT
Retirement or cessation of business
- Result in the transfer of all goods or
properties of the business to the personal
use or account of the business owner or
owners
Merger or consolidation
- Result in the dissolution of a corporation
and the transfer of the assets of the
dissolved corporation to the absorbing
corporation
Output tax on transactions deemed sales
- Shall be based on the market value of the
goods sold as of the occurrence of the
deemed sale transaction
*It is advised to the readers before proceeding
to the next topics to recite the Angelite Prayer.
Thank you! Laus Deo Semper!
OUTPUT VAT – ZERO-RATED SALES
Zero-rated sales
- Foreign consumptions or equivalents of
foreign consumptions and sales conferred
with an export sale treatment by special
laws and international agreements
Benefit of zero-rating
- Zero-rated sale will have a zero output
VAT but with a deductible input VAT
Zero-rated vs. Exempt sales
- Both will not have output VAT
- Taxpayer does not pay VAT
Zero-rated sales of goods
a. Export sales
 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
1. Direct export – sale and actual
shipment of goods from the
Philippines to a foreign country,
irrespective of any shipping
arrangement that influences r
determines the transfer of ownership
2. Sale to economic zones and tourism
enterprise zones
3. Sale of goods or properties, supplies,
and equipment and fuel to persons
engaged in international shipping or
international air transport operations
b. Effectively zero-rate sales
Export commission and consignment
- The export sales of registered export
traders shall include commission income
Sale to economic zones or tourism
- Considered foreign territories
Technical exportation
- Sales to locators or registered enterprises
in these zones
Effectively zero-rated sales
- Refers to persons or entities whose
exemption under special laws or
international agreements to which the
Philippines is a signatory.
Requirement for effective zero-rating
- Requires prior application with the
appropriate BIR office.
- Without an approved application for
effective zero-rating, the transaction
otherwise entitled to zero-rating shall be
considered exempt.
The VAT reciprocity exemption on embassies
and their personnel
- Do not have indirect tax exemption under
The Vienna Convention on Diplomatic
Relations
Previously zero-rated sales
- Foreign currency denominated sale
- Sales under the internal export program
- Sales to buy scout of the Philippines
- Sale of gold to BSP – now exempt effective
January 1, 2018
Zero-rated sales of services
1. Sale of services to non-residents
2. Effective zero-rated sales of services
3. Services rendered to persons engaged in
transport operations including leases of
properties thereof
4. Transport of passengers and cargoes by
domestic air or sea carriers from the
Philippines to a foreign country
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5. Sale of power or fuel generated from
renewable sources of energy
6. Services rendered to ecozones or tourism
enterprise zones
Sales of services to non-residents
- Services other than processing,
manufacturing or repacking rendered to a
person engaged in business conducted
outside the Philippines or to a non-
resident person not-engaged in business
Effectively zero-rated sales of services
- Local sale of services to a person or entity
who was granted indirect tax exemption
under special laws or international
agreements shall likewise be subjected to
0% VAT
Types of Businesses in the electricity
business:
a. Generation Companies – refer to
persons or entities authorized by the
Energy Regulatory Commission (ERC) to
operate a facility used in the production
of electricity.
b. Transmission Companies – refer to any
person or entity that owns and conveys
electricity through the high voltage
backbone system and or to sub-
transmission of assets.
c. Distribution Companies – refer to
persons or entities including a
distribution utility such as an electric
cooperative which operates a distribution
system with the provision of RA 9136
(EPIRA Law).
Services Rendered to Ecozones or Tourism
Enterprises Zones
- The sales of goods to registered
enterprises of economic zone or tourism
enterprises zones are also subject to 0%
VAT.
Enhanced VAT Refund System
- The Department of Finance shall establish
a VAT refund center in the BIR and in the
BOC that will handle the processing and
granting the cash refunds of creditable
input VAT within 90 days.
Note: all amount equivalent to 5% of the total
VAT collections of the BIR and the BOC from the
immediately preceding year shall be automatically
appropriated annually and shall be treated as a
special account In the General Fund.
 Junior Philippine Institute of Accountants and Auditors – United
BUSINESS AND TRANSFER TAXATION
Zero-Rated Sales that will be subjected to
12% VAT upon establishment of an enhanced
VAT Refund System
- The sale of raw materials or packaging
materials to a non-resident buyer for
delivery to a resident export-oriented
enterprise.
- Sale of raw materials or packing materials
to an export-oriented enterprise whose
export sales exceeds 70% of total annual
production.
- Those considered export sales under E.O
226 (The omnibus investment code of
1987), and other special laws.

The following sales of services shall likewise

be considered zero-rated:
1. Processing, manufacturing, or repacking
goods for other persons doing business
outside the Philippines
2. Services performed by subcontractors
and/or contractors in processing,
converting, or manufacturing goods for an
enterprise whose export sales exceed
70% of total annual production.

Sale to an export-oriented enterprise

- Any enterprise whose export sales
exceeding 70% of the total annual
production of the preceding taxable year
shall be considered an “export-oriented
enterprise.”

Requirement for zero-rating of export sales

to non-residents:
a. The sale must have been paid for in
acceptable foreign currency or its
equivalent in good or services.
b. The sale must be accounted for under the
rules of the BSP.

Sale of goods, properties, or services to a BOI-

registered manufacturer or producers
- The sale of goods, properties, or services
made by a VAT-registered supplier to a
BOI-registered manufacturer/producer
whose products are 100% exported are
considered export sales.

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