VALUE ADDED TAX

(VAT)
Value Added Tax
 It is an indirect tax in various services, lease of property,
sale of goods performed within the Philippines whether
exported or imported are subject to value added tax.
 It is a tax on consumption, levied on the sale, barter,
exchange or lease of goods, or properties and services
in the Philippines and the importation of goods into the
Philippines.
 Inclusion of sale of electricity by generation companies, transmission by
any entity, and distribution companies, including electric cooperatives in
the definition of sale or exchange of services.

Value Added Tax

 The seller is the one statutory liable for

the payment of the tax but the amount of
the tax maybe shifted or passed on to the
buyer, transferee or lessee of the goods
or properties or services.
Persons Liable to VAT:

 Sellers and lessors of property

 Wholesalers, retailers and traders
 Importers, manufacturers and
producers
 Those individuals rendering services
such as brokers, agents and
contractors
VAT Threshold

VAT registration
threshold increased
to P3M.
Output Tax

 These are taxes from sale of goods or

properties, services and transactions
deemed sale.
 The taxes of 12% multiply by the market
value of the goods.
Entry for Sales:

 DR Cash/Accounts Receivable PXXX

 CR Sales PXXX
 CR Output Tax PXXX
Input Tax

 These are taxes imposed on purchases or

importation of goods for sale; use as
supplies in business; use as raw materials
in the sale of services;
 Purchase of real properties and
services in which VAT was actually
paid;
 Transitional input tax of 2%
 Presumptive input tax of 4%
Entry for Purchases:

 DR Purchases PXXX
 DR Input Tax PXXX
 CR Cash/Accounts Payable PXXX
Entry for VAT Payable

 DR Output Tax PXXX

 CR Input Tax PXXX
 CR VAT Payable PXXX
VAT Quiz

Analyze the following documents.

Identify if it is a VAT or a Non-VAT
invoice/official receipt.
www.meralco.com.ph
This is a Non-VAT Official Receipt.

It does not have a statement

that the seller is VAT-registered,
and...
The VAT amount is not indicated
separately on the document.
 This is a Non-VAT Official Receipt.

However, the VAT amount is

indicated separately on the
document.

The transaction shall be treated as a purchase subject to VAT.

 This is a VAT Official Receipt.

However, the VAT amount is not

indicated separately on the
document.
And, the document is neither a
Zero-Rated Sale nor a VAT Exempt
Sale

The Invoice/OR amount exclusive 170.00 ÷ 1.12 = 151.79

of VAT will be computed by
dividing the transaction amount by
1.12.
The VAT amount will be computed
by subtracting the VAT amount
from the total invoice/OR amount 170.00 - 151.79 = 18.21
www.meralco.com.ph
 This is a VAT Official Receipt.

However, the VAT amount is not

indicated separately on the
document.
And, the document is neither a
Zero-Rated Sale nor a VAT Exempt
Sale

The Invoice/OR amount exclusive 3900.00 ÷ 1.12 = 3482.14

of VAT will be computed by
dividing the transaction amount by
1.12.
The VAT amount will be computed
by subtracting the VAT amount
from the total invoice/OR amount 3900.00 - 3482.14 = 417.86
 PT SA LE
M
VAT-EXE
 This is a VAT Official Receipt.

However, the document clearly

indicates the words “VAT-Exempt
Sale”

There is no computation of the VAT

E amount.
MPT SAL
VAT-EXE

The transaction shall be treated as a VAT-Exempt Sale.

This is a Non-VAT Official Receipt.

There is no computation of the VAT

amount.
 The phrase “in the course of trade or
business” means the 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 or government entity.
 Any business or business
pursued by an individual where
the aggregate gross sale or
receipts do not exceed
P100,000 during any 12-month
period shall be considered
principally for subsistence or
livelihood and not in the course
of business.
 Gross selling price is 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
the value added tax.
VAT on Sale of Real
Property
 The following are subject to
VAT: those held primarily for
sale to customers; those held
for lease in the ordinary
course of trade or business of
the seller.
Sale on instalment or on
deferred payment

 Sale of real property on instalment plan means

sale of real property by a real estate dealer, the
initial payments of which in the year of sale do
not exceed 25% of the gross selling price. In
case of instalment sale, the seller shall be
subject to output VAT on the instalment payment
received, including the interests and penalties for
late payment, actually and/or constructively
received.
Sale on instalment or on
deferred payment

 Sale of real property by a real estate dealer on

a deferred payment-basis means sale of real
property, the initials payments of which in the
year of sale exceed 25% of the gross selling
price. In case of sale of real properties on a
deferred-payment basis, the transaction shall
be treated as cash sale which makes the entire
selling price taxable in the month of sale.
Sale on instalment or on
deferred payment
 Initial payments are the payments which the
seller receives before or upon execution of the
instrument of sale and payments which the
seller is scheduled to receive in cash or
property during the taxable year when the sale
or disposition of the real property was made. 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.
VAT on Lease of
Properties
 Lease of properties whether real or personal held
primarily for lease to customers in the ordinary course of
trade or business
 Exemptions: when the aggregate rentals of the lessor do
not exceed P1,919,500; residential units with a monthly
rental not exceeding P12,800 regardless of the amount
of aggregate rentals received by lessor during the year.
 Lease of residential unit exemption threshold increased
to P15,000 and no longer subject to automatic
adjustments
 Threshold for VAT exempt sale of
residential lot reverted to P1.5M.
However under RR 13-2018
recognizes the adjusted threshold as
adjusted in 2011 using the 2010
Consumer Price Index values which
is P1,919,500
 Threshold for VAT exempt sale of
residential house and lot and other
residential dwellings reverted to P2.5M.
However under RR 13-2018 recognizes
the adjusted threshold as adjusted in
2011 using the 2010 Consumer Price
Index values which is P3,199,200
 Beginning 2021, threshold of VAT-
exempt sale of house and lot and other
residential dwellings will be reduced to
P2M and sale of low-cost housing and
sale of residential lot will be subject to
VAT.
A VAT on sale of services and use or lease of property in the
performance of all kinds of services for others for a fee,
remuneration or consideration, including those performed or
rendered by
 Construction and service contractors
 Stock, real estate, commercial, customs and immigration brokers
 Lessors of property whether personal or real
 Warehousing services
 Lessors or distributors of cinematographic films
 Persons engaged in milling, processing, manufacturing or
repacking goods for others
 Proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts, theatres, and movie houses
 Proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers
 Dealers in securities
 Lending investors
A VAT on sale of services and use or lease of property in the
performance of all kinds of services for others for a fee,
remuneration or consideration, including those performed or
rendered by
 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
 Domestic 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
 Sale of electricity by generation, transmission, and
distribution companies shall be subject to 12%
A VAT on sale of services and use or lease of property in the
performance of all kinds of services for others for a fee,
remuneration or consideration, including those performed or
rendered by

 Franchise grantees of electric utilities, telephone, and telegraph,

radio and/or television broadcasting and all other franchise grantees
except franchise grantees of radio and/or television broadcasting
whose annual gross receipts of the preceding year do not exceed
P10,000,000 and franchise grantees of gas and water utilities
 Non-life insurance companies including surety, fidelity, indemnity
and bonding companies
 Pre-need companies
 Health maintenance organizations
 Similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental
faculties.
NEWLY VATABLE TRANSACTIONS
(PREVIOUSLY EXEMPT OR ZERO-RATED)

 Sale of electricity by generation, transmission and distribution

companies
 Repeals zero-rating of generation companies
 Repeals VAT exemption of National Power Corporation
 Repeals VAT exemption of electric cooperatives including on
their importation of machineries and equipment
 Repeals 3% of franchise tax on electric utilities
 Sale of non-food agricultural products; marine and forest products in
their original state by primary producer or owner of the land
 Sale of cotton and cotton seeds in their original state; and copra
 Sale or importation of coal and natural gas, in whatever form or state
 Sale or importation of petroleum products subject to excise tax,
including raw materials for their production
 Sale by the artist of his works of art, literary work, and musical
compositions
 Services rendered by doctors of medicine duly registered with the PRC
 Services rendered by lawyers duly registered with the IBP
NEWLY VATABLE TRANSACTIONS
(PREVIOUSLY SUBJECT TO
PERCENTAGE TAX)
 Proprietors, lessees or operators of cabarets and
night or day clubs
(previously subject to 18% amusement tax)
 Common carriers by air and sea relative to their
transport of passengers from one place in the
Philippines to another place in the Philippines
(previously subject to 3% common carrier’s tax)
 Franchise taxes of domestic carriers under their
charters have been abolished
 Domestic land carriers continue to be subject to
VAT on transport of cargoes
Transactions Deemed
Sale
 Transfer or consumption not in the ordinary course of business of
goods or properties originally intended for sale or for use in the
course of business
 Consignment of goods if actual sale is not made within 60 days
following the date such goods were consigned; those returned
within the 60-day period are not deemed sold
 Retirement from or cessation of business with respect to all goods
on hand, whether capital goods, stock in trade, supplies or
materials as of the date of such retirement or cessation, whether or
not the business is continued by the new owner or successor;
change of ownership of business; dissolution of a business
partnership and creation of a new one which takes over the
business
 Distribution or transfer to:
 Shareholders or investors as share in the profits of the VAT-registered person; or
 Creditors in payment of debt or obligation
Limitations on the Input
Taxes:
 If at the end of any taxable quarter the input taxes exceeds the output taxes,
the excess shall be carried over the succeeding quarter or quarters. The
input tax, inclusive of input VAT carried over from the previous quarter that
may be credited in every quarter shall not exceed 70% of the output vat
 If the aggregate acquisition cost, excluding VAT, of capital goods subject to
the depreciation exceeds P1,000,000
 If the estimated useful life is 5 years or more, the input tax shall be
evenly spread over the month of acquisition and the 59 succeeding
months
 If the estimated useful life is less than 5 years, the input tax shall be
spread over its useful life
 In the event the construction or assembly of the depreciable capital
goods takes more than 1 month to complete the capital good shall be
deemed to have been acquired on the month of completion of the
capital goods, and input tax from it shall begin from that month
 If the depreciable capital good is sold or transferred prior to the full
utilization of the input tax from it, the seller shall continue to amortize
the remaining unutilized portion of the input tax against the output tax.
Transitional Input Tax
 A person who become liable to VAT or any
person who elects to be VAT registered person
shall be allowed input tax on his beginning
inventory of goods, materials and supplies,
equivalent to 2% of the value of such inventory
or the actual VAT paid on such goods,
materials and supplies whichever is higher
which shall be creditable against the output
tax.
Ex. Of Transitional Input
Tax
 Mr. Reyes began his business as a merchant, but non-taxpayer. In
his first calendar year of operations (2017), sales amounted to
P3,000,000. He became a subject to the VAT on January 1, 2019.
On December 31, 2018, he had an inventory with a balance sheet
valuation by physical count, exclusive of VAT of P5,000 , all
purchased from VAT suppliers. In January 2019 his gross sales
amounted to P150,000 and purchases of P50,000 from VAT
suppliers, exclusive of VAT. The VAT for the month would have
been:
 Output tax (P150,000 x 12%) P18,000
 Less:
 Input tax on purchases (50,000 x 12%)P6,000
 Transitional input tax (5,000 x 12%) 600 6,600
 VAT Payable P11,400
Presumptive Input Tax
 VAT registered persons or firms engaged in
the processing of sardines, mackerel, milk, and
in manufacturing refined sugar, cooking oil and
packed noodle-based instant meals, shall be
allowed a presumptive input tax, creditable
against the output tax, equivalent to 4% of the
gross value in money of their purchases of
primary agricultural products which are used as
inputs to their production.
Presumptive Input Tax

 The term “processing” shall mean

pasteurization, canning and activities
which through physical or chemical
process alters the exterior texture or form
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 and condition.
Input Tax Allocation
 Whenever a taxpayer with a VAT
business and a non-VAT business makes
a purchase during the month from a VAT-
registered person, for use in both his
VAT and non-VAT business, the input tax
on the purchase shall be allocated
between the VAT and non-VAT business
on the basis of sales during the taxable
month.
Ex. Of Input Tax
Allocation
 Durango Company has a business#1 which is subject to value
added tax and business#2 which is not subject to VAT. Data for
the month is as follows:
 Sales VAT business, exclusive of VAT P700,000
 Sales NON-VAT invoice, invoice price 300,000
 Purchases of goods from VAT suppliers for VAT business,
VAT exclusive 200,000
 Purchase of supplies from VAT suppliers for use of VAT and
NON-VAT business, VAT exclusive 20,000
Ex. Of Input Tax
Allocation
 Schedule: Input tax from supplies:
 VAT on supplies (20,000 x 12%) P2,400
 Sales: VAT business 700,000
 Sales: NON-VAT 300,000
 Total Sales P1,000,000
 Creditable input tax
(700,0000/1,000,000x2,400) P1,680
Ex. Of Input Tax
Allocation
 Output taxes (P700,000 x 12%) 84,000
 Less: Input taxes
 On purchase of goods
VAT business P24,000
 On purchase of supplies1,680 25,680
 VAT PAYABLE P58,320
Withholding of VAT
 The government or any of its political
subdivisions, instrumentalities or agencies,
including GOCCs’ shall before making payment
on account of its purchase of goods from
sellers who are subject to VAT, deduct and
withheld a final VAT at the rate of 5% of the
gross payment to be remitted within 10 days
following the end of the month the withholding
was made. Use FORM 2306
Persons required to deduct and
withhold VAT of 5%:

 Local government units

 Provincial treasurer
 City treasurer
 Municipal treasurer
 Treasurers of GOCCs
 Chief Accountant or any person holding
similar position and performing similar
function in national government offices.
Returns and payment of taxes withheld
shall be within 10 days following the end
of the month the withholding was made.

 Form to be used by payor in remitting tax - BIR Form

No 1600 (monthly remittance return of VAT and other
percentage taxes withheld)
 Form required to be furnished by payor
 BIR Form No 2306 (certificate of final tax withheld
at source)
 BIR Form No 2307 (certificate of creditable tax
withheld at source)
 BIR Form 2550M (Monthly VAT Declaration)
 BIR Form 2550Q (Quarterly VAT Return)
Mr. Sundalong Kanin, a VAT registered wholesaler of RTW
shirts and pants purchases his merchandise from VAT-
registered persons. He has the following gross sales and
purchases excluding VAT for the months of April, May, and
June 2018. VAT Payable April? May? 2nd Quarter?

April May June Quarter

Sales P700,000 P800,000 P900,000 P2,400,000

Purchases 420,000 480,000 540,000 1,440,000

Filing of Return and
Payment of Tax
 Monthly VAT declaration/EBIRFORMS: Manual – within 20 days after the end of each
month
 EFPS – within 25 after the end of each month
 Quarterly return – within 25 days after the end of the quarter
 Place of filing and payment shall be to any authorized bank where the RDO is located
 Quarterly return – amounts reflected in the monthly VAT declarations for the first 2 months
of the quarter shall still be included in the quarterly VAT return which reflects the cumulative
figures for the taxable quarter. Payments in the monthly Vat return to arrive at the net VAT
payable or excess input tax/over payment as of the end of a quarter
 If the input tax exceeds the output tax, the input tax inclusive of the input tax carried over
from the previous quarter that may be credited in every quarter shall not exceed 70% of the
input tax. Provided that, the excess input tax shall be carried over to the succeeding
quarter.
 Withholding of VAT
 Sale of goods and services to government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs is subject to VAT
 The government deducts and withholds a final VAT of 5% of the gross payment thereof
 Payment for lease or use of properties or property rights to non-resident owners shall
be subject to 10% withholding tax at the time of payment
 VAT withheld shall be remitted within 10 days following the end of the month the
withholding was made
Tax Credits
 An input tax evidenced by a VAT invoice or
official receipt issued by a VAT-registered
person, on the following transactions, shall be
creditable against the output tax:
 VAT actually paid in the course of trade or business
on the purchase or importation of goods:
 For sale; or for conversion into or intended to form part of a
finished product for sale, including packaging materials; or
for use as supplies in the course of business; or for use as
raw materials supplied in the sale of services; or use in
trade of business for which deduction for depreciation or
amortization is allowed
The following are required
to register for VAT:
 Any person whose gross sales or receipts for
the past 12 months other than those that are
exempt have exceeded P1,919,500 3M
 A belief that his gross sales or receipts for
the next 12 months other than those that are
exempt will exceed P1,919,500 3M
 Franchise grantees of radio and/or television
broadcasting, whose gross annual receipts
for the preceding calendar year exceeded
P10 million shall register within 30 days from
the end of the calendar year
Optional VAT Registration
for VAT Exempt Persons
 Any person whose sale or lease of goods or
properties or the performance of services,
other than the exempt transactions, the gross
annual sales or receipts do not exceed
P1,919,500 may in relation elect to be VAT
registered with the RDO who has jurisdiction
over the head office of that person and pay the
annual registration fee of P500 for every
separate and distinct establishment. The
registered person shall not be allowed to
cancel his registration for the next 3 years.
Registration of Non-VAT or
Exempt Taxpayers
 Any person other than those required to be
registered as VAT persons, engaged in any
business shall on or before the
commencement of his business or whenever
he transfers to another revenue district,
register with RDO concerned within 10 days
from the commencement of business or
transfer and shall pay the applicable
registration fee of P500 for every separate or
distinct establishment or place of business if he
has not paid the registration fee in the
beginning of the taxable year.
Vat Effects of the Expanded
Senior Citizens Act of 2010

 Senior Citizen or elderly is any Filipino

citizen who is a resident of the
Philippines, and who is 60 years old or
above; may apply to senior citizens with
“dual citizenship”, provided they prove
their Filipino citizenship and have at least
6 months residency in the Philippines.
Vat Effects of the
Expanded Senior Citizens
Act of 2010
 All establishments supplying any of the
following goods and services to senior
citizens shall give a 20% discount. The
grant of the discount is only for the
purchase of goods and services for the
exclusive use and enjoyment or
availment of the senior citizen.
 Vat Effects of the
Expanded Senior Citizens
Act of 2010
 Medicines, vaccines and other medical supplies
 Professional fees of attending physician
 Professional fees of licensed health workers
 Medical and dental services
 Actual fare for land transportation
 Actual transportation fare for domestic air transport
services and shipping vessels
 Services in hotels
 Admission fees
 Funeral and burial services
Sale of any goods
and services to senior
citizens shall be
exempt from VAT.
Additional VAT
Exemptions
 Sale of medicines prescribed for diabetes,
hypertension, and high cholesterol
 Transer of property pursuant to Section 40
(C) (2) of Tax Code
 Association dues, membership fees, other
assessments and charges collected by
homeowners’ association and
condominium corporations
Invoicing and Bookeeping
 Books of accounts with gross annual sales,
earnings, receipts or output exceeding P3M must be
audited by an independent CPA.
 Each sale of merchandise or services valued at
P100 or more must be issued duly registered
receipts or invoices.
 Taxpayers engaged in export, e-commerce, and
those under the jurisdiction of the Large Taxpayer
Services shall issue electronic receipts or invoices
within 5 years after the TRAIN law’s effectivity.
Creditable Input Tax
Period within which VAT refund
of input taxes shall be made
 Sec. 112 (C) The Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within 120 days from the date of
submission of complete documents. In case of full or partial denial of the
claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above,
the taxpayer affected may, within 30 days from the receipt of the decision
denying claim or after the expiration of the 120 day period, appeal the
decision or the unacted claim with the Court of Tax Appeals (CTA).
 Under TRAIN, The Commissioner shall grant a refund for creditable input
taxes within 90 days from the date of submission of the official receipts or
invoices and other documents in support of the application filed. Should the
Commissioner find that the grant of refund is not proper, the Commissioner
must state in writing the legal and factual basis for the denial. In case of full
or partial denial of claim for tax refund, the taxpayer may within 30 days from
receipt of the decision denying the claim appeal the decision with the CTA.
Penalty for failure on the part of any official, agent, or employee of the BIR
to act on the application within the 90-day period shall be imposed.

VAT returns and payment
 Sec. 114 (A) Every person liable to pay the
VAT shall file a quarterly return of his gross
amount of his gross sales/receipts within 25
days following the close of each taxable
quarter. Furthermore, VAT-registered persons
shall pay VAT on a monthly basis.
 Under TRAIN, Effective 1 January 2023, the
filing and payment of VAT shall be done within
25 days following the close of each taxable
quarter.

Withholding of VAT
 Sec. 114 (C) The Government or any of its political
subdivisions, instrumentalities or agencies shall, before
making payment of purchase of goods and services,
deduct and withhold a final VAT at the rate of 5% of the
gross payment thereof. Payment for lease or use of
properties or property rights to nonresident owners shall
be subject to 12% withholding tax at the time of payment.
 Under the TRAIN, Effective 1 January 2021, the VAT
withholding system shall shift from final to a creditable
system. Payments for purchase of goods and services
arising from Official Development Assistance funded
projects shall not be subject to the final withholding VAT.

QUESTIONS?
Zero-Rated VAT

 A zero-rated sale by VAT-registered

person shall not have any output tax
however input tax is available at tax
credit or refund.
Zero-Rated VAT
 It is a sale, barter or exchange of goods, properties
and/or services subject to 0% VAT pursuant to
Sections 106 (A) (2) and 108 (B) of the Tax Code.
It is a taxable transaction for VAT purposes, but
shall not result in any output tax. However, the
input tax on purchases of goods, properties or
services, related to such zero-rated sales, shall
be available as tax credit or refund in
accordance with RR No. 16-2005.
  
 Sec. 108 (B) Zero-rated sales of services
include:
1. Services rendered to persons engaged in international shipping or air transport
operations, including leases of property for use thereof; Provided, however, that
the services referred to herein shall not pertain to those made to 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, the same being subject
to twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1,
2006;
2. Transport of passengers and cargo by domestic air or sea carriers from the
Philippines to a foreign country. Gross receipts of international air carriers doing
business in the Philippines and international sea carriers doing business in the
Philippines are still liable to a percentage tax of three percent (3%) based on their
gross receipts as provided for in Sec. 118 of the Tax Code but shall not be liable to
VAT; and
3. Services performed by subcontractors and/or contractors in processing, converting,
or manufacturing goods for an enterprise whose export sales exceeds seventy
percent (70%) of total annual production
4. Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported where the services
are paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
Under the TRAIN LAW:
 Item 1 will qualify as zero-rated sale of services if these
services are exclusively for international shipping and air
transport operations.
 • Zero-rating for transport of passenger and cargo from the
Philippines to foreign country shall apply for domestic air or sea
vessels only.
 • Items 3 and 4 shall be subjected to 12% VAT upon
successful establishment and implementation of an enhanced
VAT refund system that grants refunds of creditable input tax
within 90 days from filing of the VAT refund application with the
BIR and all pending VAT refund claims as of 31 December
2017 shall be fully paid in cash by 31 December 2019.

What transactions are considered as
zero-rated sales?
 Services other than processing, manufacturing or repacking rendered to a
person engaged in business conducted outside the Philippines or to a
non-resident person engaged in business who is outside the Philippines
when the services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
 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 shipping sources using technologies
such as fuel cells and hydrogen fuels; Provided, however that zero-rating
shall apply strictly to the sale of power or fuel generated through
renewable sources of energy, and shall not extend to the sale of services
related to the maintenance or operation of plants generating said power .
 Services rendered to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero percent (0%) rate;
 The following sales by VAT-
registered persons shall be subject
to zero percent (0%) rate:
 Export Sales
1. The sale and actual shipment of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the
goods so exported, paid in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
2. The sale of raw materials or packaging materials to a non-resident buyer
for delivery to as resident local export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of the
said buyer's goods, paid for in acceptable foreign currency, and accounted
for in accordance with the rules and regulations of the BSP;
3. The sale of raw materials or packaging materials to an export-oriented
enterprise whose export sales exceed seventy percent (70%) of total
annual production;
 The following sales by VAT-
registered persons shall be subject
to zero percent (0%) rate:
 Export Sales
4. Sale of gold to the BSP;
5. Transactions considered export sales under Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987, and other special laws; and
6. The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations; Provided, that the
same is limited to goods, supplies, equipment and fuel pertaining to or attributable
to the transport of goods and passengers from a port in the Philippines directly to
a foreign port, or vice-versa without docking or stopping at any other port in the
Philippines unless the docking or stopping at any other Philippine port is for the
purpose of unloading passengers and/or cargoes that originated from abroad, or
to load passengers and/or cargoes bound for abroad; Provided, further, that if any
portion of such fuel, goods or supplies is used for purposes other than the
mentioned in this paragraph, such portion of fuel, goods and supplies shall be
subject to twelve percent (12%) output VAT.
Under TRAIN Law
 Sale of gold to BSP is reclassified from export sales to
exempt transactions.
 • Item 6 will qualify as export sales provided that the
goods, supplies, equipment and fuel shall be used for
international shipping and air transport operations.
 • Items 2, 3, and 5 shall be subject to 12% VAT upon the
successful establishment and implementation of an
enhanced VAT refund system that grants refunds of
creditable input tax within 90 days from filing of the VAT
refund application with the BIR and all pending VAT refund
claims as of 31 December 2017 shall be fully paid in cash
by 31 December 2019.

The following sales by VAT-
registered persons shall be subject
to zero percent (0%) rate:
 Foreign Currency Denominated Sales (FCDS)
 The sale to a non-resident of goods, except those mentioned in
Sections 149 and 150 of the Tax Code, assembled or
manufactured in the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP.
 FCDS are removed from zero-rated sale of goods
 Sales to Persons or Entities Deemed Tax-exempt under Special Law
or International Agreement
 Sale of goods or property to persons or entities who are tax-exempt under special
laws or international agreements to which the Philippines is a signatory, such as,
Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc.
VAT ZERO-Rating on sales
of goods/services to PEZA
Locators
 The VAT zero-rating incentive being
enjoyed by Philippine Economic Zone
Authority (PEZA) locators shall remain in
full force and effect.
 The Commissioner of Internal Revenue
shall grant refund for creditable input
taxes within 90 days from the date of
submission of the official receipts or
invoices and other documents in support
of the application.
VAT Refund Center

 The DOF shall establish a VAT refund

center in the BIR and in the BOC that will
handle the processing and granting of
cash refunds of creditable input tax.
Automatic Appropriation

 An amount equal to 5% of the total VAT

collection of the BIR and BOC from the
immediately preceding year shall be
automatically appropriated annually and
shall be treated as a special account in
the general fund or as trust receipts for
the purpose of funding claims for VAT
refund.
Ex. Of Zero-Rated VAT

 Mr. Tan, a VAT- registered person,

exported all his products to Japan. Input
taxes on the goods exported amounted
to P50,000. The output tax is P0.
 The P50,000 input taxes may be
refunded or credited.
Ex. Of Zero-Rated VAT
 Mr. Cancio, a VAT registered person, selling services had an input
tax of P75,000 attributable to a zero rated sale with out put taxes
on the domestic sales of the month being P260,000 and input
taxes related to domestic sales of P120,000, the value added tax
payable for the month, after credit for the input tax attributable to
the zero rated sales would have been computed as follows:

 Output taxes on domestic sales of the month P260,000

 Less: Input taxes on domestic sales P120,000
 Input tax attributable to the zero rated 75,000 195,000
 VAT Payable P65,000
VAT-Exempt

 It means free of exclusions

from imposition or payment
of VAT of 12% from sale of
goods and services .
 A) Sale or importation of agricultural and
marine food products in their original state,
livestock and poultry of or king generally used
as or yielding or producing foods for human
consumption; and breeding stock genetic
materials therefore. 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. Polished and/or husked
rice, corn grits, raw cane sugar and molasses,
ordinary salt, and copra shall be considered in
their original state.
 B) sale or importation of fertlizers; 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 for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally
considered as pets)
 C) Importation of personal and household effects
belonging to the residents of the Philippines returning
from abroad and non-resident citizens coming to
resettle in the Philippines. Provided, that such goods
are exempt from customers duties under the Tariff and
Customs Code of the Philippines.
 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
 H) Educational services rendered by private
educational institutions, duly accredited by
the DepEd, CHED, TESDA and those
rendered by government educational
institutions
 I) Services rendered by individuals
pursuant to an employee-employer
relationship
 J) Services rendered by regional or area
headquarters established in the
Philippines by multinational corporations
which act as supervisory, communications
and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-
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
 L) Sales by agricultural cooperatives duly
registered with the CDA to their members as well
as sale of their produce, whether in its original
state or processed form, to non-members; their
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
 M) Gross receipts from lending activities
by credit or multi-purpose cooperatives
duly registered with the CDA
 N) Sales by non-agricultural, non-electric
and non-credit cooperatives duly
registered with the CDA: Provided, that
the share capital contribution of each
member does not exceed P15,000 and
regardless of the aggregate capital and
net surplus ratably distributed among the
members
 O) Export sales by persons who are not
VAT-registered
 R) Sale, importation, printing or
publication of books and any newspaper,
magazine review or bulletin which
appears at regular intervals with fixed
prices for subscription and sale and
which is not devoted principally to the
publication of paid advertisements
Vat Exemptions
Sec. 109 (1) VAT exemptions include, among others, the following
Sec. 109 (1) VAT exemptions include, among others, the following
transactions:
 1. Importation of professional instruments, etc. belonging to persons
coming to settle in the Philippines, for their personal use, accompanying
such persons or arriving within 90 days before or after their arrival;
 2. Sale of real property utilized for low- cost housing, sale of residential lot
valued at PHP1.5m (as adjusted by Revenue Regulations (“RR”) No. 16-
2011, PHP1,919,500) and sale of house and lot and other residential
dwellings valued at PHP2.5m (as adjusted by RR No. 16-2011,
PHP3,199,200);
 3. Lease of residential unit with monthly rental of PHP10,000 (as adjusted
by RR No. 16-2011, PHP12,800);
 4. Importation of fuel, goods, and supplies by persons engaged in
international shipping of air transport operations; and
 5. Other sale of lease of goods or properties or the performance of
services, the amount of which does not exceed PHP1.5m (as adjusted by
RR No. 16-2011, PHP1,919,500).
Under TRAIN Law VAT
Exemptions are:
 Expansion of the importation exemption on professional instruments to
include those belonging to overseas Filipinos, and their families and
descendants who are now residents or citizens of other countries.
 • Beginning 1 January 2021, the VAT exemption shall only apply to 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 utilized for
socialized housing and sale of house and lot and other residential
dwellings with threshold reduced to PHP2m.
 • For item 3, the lease threshold of PHP10,000 would be increased to
PHP15,000 and it will no longer be adjusted to its present value using the
CPI, as published by Philippine Statistics Authority.
 • Exemption of the importation of fuel, goods and supplies shall only apply
if such are used for international shipping or air transport operations.
 • For item 5, the VAT threshold is increased to PHP3m.
Under TRAIN Law VAT
Exemptions are:
 • Added the exemption of sale or lease of goods and services to
senior citizens and persons with disabilities.
 • Added the exemption for transfers of property pursuant to Section
40 (C)(2) of the Tax Code.
 • Added the exemption for association dues, membership fees, and
other assessments and charges collected by homeowners
associations and condominium corporations.
 Sale of gold to BSP is now classified under VAT exempt transactions.
 • Beginning 1 January 2019, sale of drugs and medicines prescribed
for diabetes, high cholesterol and hypertension would be included as
VAT exempt transactions.
