VAT EXEMPT SALES – Sec.
109 Tax Code
- RA 10963 (TRAIN Law);
- RR 13-2018 RA 11534 (CREATE Law); RR 4-2021; RR 8-
2021; RR 9-2021
The VAT exempt transactions provided in the Tax Code are as
follows:
A. “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 consumption; and
breeding stock and genetic materials therefor.
RR 16-2005 provides that products classified under this exemption
(such as meat, fruits and vegetables) shall be considered in their
“original state” even if they have undergone the simple processes of
preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping including those
using advanced technological means of packaging, such as shrink
wrapping in plastics, vacuum packing, tetra-pack, and other similar
packaging methods.
VAT EXEMPT SUGAR
RAW SUGAR CANE refers to sugar produced by simple process of
conversion of sugar cane without need of any mechanical or similar
device. Under the revised regulation, raw cane sugar refers only to
muscovado sugar. Thus, only raw sugar cane is exempt from VAT
under the tax code.
Cane Sugar produced from the following shall be presumed, for
internal revenue purposes, as refined sugar:
 Product of a refining process
 Products of a sugar refinery; or
 Product of a production line of a sugar mill accredited by the
BIRT to be producing and/or capable of producing sugar
with polarimeter reading of 99.5o and above.
SALE OF MARINATED FISH
Sale of marinated fish is not exempt from VAT. Laws granting
exemption from tax are construed strictly against the taxpayer.
Exemption from payment of tax must be clearly stated in the
language of the law. (Rev. Ruling 348-11 dtd Sept. 28, 2011)
Determine which transaction is subject to VAT: 3. Purchase of local raw materials for formulation of hog feeds - vat
1. Sale of copra - exempt
4. Importation of raw materials for the formulation of hogfeeds -
2. Sale of bonsai – not exempt
3. Sale of wood/lumber - vatable exempt
4. Sale of barbeque (chicken or pork) - exempt
5. Importation of raw materials for the formulation of feeds for
5. Sale of tilapia - exempt
6. Sale of roasted chicken - exempt animals generally considered as pets - vat
7. Sale of canned pineapple chunks - vatable
6. Importation of fertilizers - exempt
8. Sale of salted eggs - exempt
9. Sale of smoked fish - exempt
10. Sale of flowers - vatable
C. Importation of personal and household effects belonging to:
11. Sale of raw sugar - exempt
12. Sale of muscovado - exempt  The resident of the Philippines returning from abroad; and
13. Sale of refined sugar – vatable
 Non-resident citizens coming to resettle in the Philippines.
B. Sale or Importation of: Provided, that such goods are exempt from customs duties under

 Fertilizers the Tariff and Customs Code of the Philippines

 Seeds, seedlings and fingerlings, fish, prawn, livestock and
poultry feeds, including ingredients, whether locally
produced or imported, used in the manufacture of finished
feeds (except specialty feeds.)
Specialty feeds refers to non-agricultural feeds or food for race
horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets are subject to VAT.
Mike returned from Europe after watching Gilas games during the
2021 Olympic Qualifying Tournament. He brought with him several
personal effects (souvenirs) he bought from Europe.
Question: Are the personal effects brought by Mike to the
Philippines subject to VAT?

Determine which transaction is subject to VAT:
1. Sale/importation of V-Meg hog feeds - exempt
2. Sale/importation of V-Meg feeds for pets - vatable
D. Importation of professional instruments and implements, tools of
trade, occupation or employment, wearing apparel, domestic
animals, and personal and household effects belonging to persons
coming to settle in the Philippines or Filipinos or their families and
descendants who are not residents or citizens of other countries,
such parties herein referred to as overseas Filipinos, in quantities
and of the class suitable to the profession, rank or position of the
persons importing said items, for their own use and not for barter or
sale, accompanying such persons, or arriving within a reasonable
time. Provided, that the Bureau of Customs may, upon the
production of satisfactory evidence that such persons are actually
coming to settle in the Philippine and that the goods are brought
from their former place of abode, exempt such goods from payment
of duties and taxes: Provided, further, vehicles, vessels, aircrafts and
machineries and other similar goods for use in manufacture, shall
not fall within this classification and shall therefore be subject to
duties, taxes and other charges.
E. Services subject to Percentage Tax under Title V of the Tax
Code, as amended (Sections 116-127) as follows:
1. Tax on persons exempt from value-added tax (Sec. 116)
2. Percentage tax on domestic carriers and keepers of garages (Sec.
117)
3. Percentage tax on international carriers (Sec. 118)
4. Tax on franchises (Sec. 119)
5. Tax on overseas dispatch, message or conversation originating
from
the Philippines (Sec. 120)
6. Tax on banks and non-bank financial intermediaries (Sec. 121)
7. Tax on other non-bank financial intermediaries (Sec. 122)
8. Tax on life insurance premiums (Sec. 123)
9. Tax on agents of foreign insurance companies (Sec. 124)
10. Amusement taxes (Sec. 125)
11. Tax on winnings (Sec. 126); and
12. Tax on sale, barter or exchange of share of stock listed and
traded through the local stock exchange (Sec. 127)
F. SERVICES BY
 “Agricultural contract growers” and  Milling for others of:
 Palay into rice
 Corn into grits; and
 Sugar cane into raw sugar
G. Medical, dental, hospital and veterinary services except
those rendered by professionals
Laboratory services are exempted. If the hospital or clinic operates a
pharmacy or drugstore, the sale of drugs and medicines are subject
to VAT. Hospital bills constitute medical services. The sale made by
the drugstore to the in-patients which are included in the hospital
bills are part of medical bills exempt from VAT. Sales of the drug
store to the out-patients are taxable because they are not part of
medical services of the hospital.
Medical practitioners, under the aforementioned regulation, shall
likewise include medical technologies, allied health workers and
other medical practitioners who are not under an employer-
employee relationship with the hospital, clinic or HMO and other
similar establishments.
 G. Medical, dental, hospital and veterinary services except
those rendered by professionals
Pursuant to RR 16-2005, services of Professional Practitioners are
subject to VAT if annual gross professional fees exceed P3,000,000.
H. “Educational services rendered by private educational
Otherwise, such professional fees are subject to Percentage Tax
institutions, duly accredited by DepEd, CHED, TESDA and
under Section. 116 of the Tax Code, as amended. Professional
those rendered by government educational institutions.
Practitioners include, among others, the following:
- Medical practitioners
“Educational services” shall refer to academic, technical or
- CPAs
vocational education provided by private educational institutions
- Insurance Agents (Life and Non-life)
duly accredited by the DepEd, the CHED, and TESDA and those
- Other professional Practitioners required to pass the
rendered by government educational institutions and it does not
government examination.
include seminars, in-service training, review classes and other
similar services rendered by persons who are not accredited by the
DepEd, the CHED and/or TESDA [Sec. 4. 109-1 (B)(h), RR 16-
2005]

Determine which transaction is subject to VAT:

1. Gross receipts by ABC University, a proprietary educational
institution registered under CHED
2. Gross receipts by Saint Mary’s University, a non-stock, non-profit
educational institution registered under CHED
3. Gross receipts by XYZ primary school accredited by the DepED
4. Gross receipts by Employ Me Not Institute, a vocational school
registered under TESDA
5. Gross receipts by a review school offering CPA review course
6. Gross receipts by a tutorial school offering review courses for
college entrance examinations
I. “Services rendered by individuals pursuant to an employer-
employee relationship

J. “Services rendered by Regional or Area Headquarters

(RHQs) established in the Philippines by multinational
corporations which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches
in the Area-Pacific Region and do not earn or derive income
from the Philippines.

K. “Transactions which are exempt under international

agreements to which the Philippines is a signatory or under
special laws, EXCEPT those under Presidential Decree No. 529
(Petroleum Exploration Concessionaires under the Petroleum
Act of 1949)

Examples (special laws):

PD 1869 - PAGCOR Charter
It is to be reiterated however, that
RA9367 -BiofuelsAct
RA 10072 - Philippine Red Cross sale or importation of agricultural
RA 9994 - Expanded Senior Citizens Act of 2010 RA 10754 - food products in their original state is
Magna Carta for PWDs EXEMPT from VAT irrespective of the
seller and buyer thereof, pursuant to
Subsection (a) [Sec. 4. 109-1 (B) (l), RR
4-2007]
N. “Sales by non-agricultural, non-electric and non- credit
cooperatives duly registered with the Cooperative Development
Authority, provided, that the share capital contribution of each
member does not exceed fifteen thousand pesos (P15,000) and
regardless of the aggregate capital and net surplus ratably distributed
among the members”. Importation by non-agricultural, non-electric
and non-credit cooperatives of machineries and equipment including
spare parts thereof, to be used by them are subject to VAT.
The TRAIN Law provided that the VAT exemption on sale or real
property beginning January 1, 2021 shall only apply to the
following:

a. Sale of real properties NOT primarily held for sale to

customers or held for lease in the ordinary course of trade or
business

Sale of real property not primarily held for sale or for lease is, in
general, VAT exempt. However, if such property is used in the trade
or business of the seller, the sale shall be subject to VAT as an
incidential transaction to the seller’s main business. On the other
hand, sale of real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business of the seller
shall be subject to VAT.

b. Sale of real Program (UHLP) or any equivalent housing

program of the property utilized for socialized housing as
defined under RA No. 7279, as amended:
 Price Index, as published by the Philippine Statistics Authority
Socialized Housing refers to housing programs and projects (PSA).
covering houses and lots or home lots only that are undertaken by
the government or the private sector for the underprivileged and
homeless citizens, which shall include sites and services
development, long-term financing, liberalized terms on interest
payments, and as such other benefits in accordance with the
provisions of Republic Act 7279, otherwise known as the “Urban
Development and Housing Act of 1992” and RA No. 7835 and RA
No. 8763. “Socialized Housing” shall also refer to projects intended
for the underprivileged and homeless wherein the housing package
selling price is within the lowest interest rates under the Unified
Home Lending Government, the private sector or non-government
organizations.

c. Sale of House and Lot and Other Residential dwellings with

selling price of not more than Two Million Pesos (P2,000,000) as
adjusted in 2011 using the 2010 consumer price index (CPI)
Based on RR 8-2021 issued by the BIR on June 11, 2021, the
adjusted threshold to be used shall be P3,199,200.
Provided, further, that every three (3) years thereafter, the amounts
state herein shall be adjusted to its present value using the Consumer