Chapter 2

VAT ON
IMPORTATION
ANIE P. MARTINEZ, CPA
IMPORTATION
- refers to the 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
 VAT on importation Final withholding VAT

Object consumption Goods Services

Imposed upon Importers / buyers Foreign service
providers
Statutory taxpayer Importers / buyers Resident purchaser of
the service*
Nature Direct consumption Indirect business tax
tax
Tax basis Landed cost Contract price
Collecting agency BOC BIR
Timing of payment Before withdrawal of After the month of
goods payment
IMPORT OF GOODS
1. Exempt importation
2. Vatable importation
 EXEMPT IMPORTATION
A. Importation of exempt goods

1. Agricultural and marine food products in their original state

2. Fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and
poultry feeds, including ingredients used in the manufacture of finished
feeds
3. Books and any newspaper, magazine, review, or bulletin which appear at
regular intervals with fixed prices for subscription and sale and which is
not devoted principally to the publication of paid advertisements
 EXEMPT IMPORTATION
4. Passengers or cargo vessels and aircrafts, including
engine, equipment and spare parts thereof for domestic or
international transport operations
Importation by VAT-exempt persons
1. International shipping or air transport operators on their
import of fuel, goods and supplies
2. Cooperatives 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

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
IMPORTATION OF EXEMPT
GOODS
A. Basic human food and related goods
1. Agricultural or marine food products in original
state
2. Livestock and poultry of a kind generally used as, or
yielding or producing foods for human consumption
3. Breeding stock and genetic materials therefore
IMPORTATION OF EXEMPT
GOODS
B. Books, newspapers and magazines
C. Passengers or cargo vessels and aircrafts,
including engine, equipment and spare parts
 BASIC HUMAN FOOD AND
RELATED PRODUCTS
Agricultural or marine food products in original
state
- Import exemption is limited to agricultural or
marine food products in their original state or those
which undergone simple processing.
Examples of exempt agricultural or
marine food products in original state:
1. Grapes, apples, oranges and other fruits
2. Vegetables, tea, ginseng
3. Rice, corn, coffee beans and other edible farm products
4. Marine foods such as fish and crustaceans
5. Poultry and livestock
6. Milk, eggs, and meat for human consumption
Livestock includes cow, bulls, calves, pigs, sheep,
goats and rabbits.
Poultry shall include fowls, ducks, geese and turkey.
Marine food shall include fish and crustaceans such
as, but not limited to, eels, trout, lobster, shrimps,
prawns, oysters, mussels and clams (RR16-2005).
Meaning of simple processing
The term simple processing includes:
1. Acts of preparation for the market
2. Acts of preservation, or
3. Acts of packaging including advanced technological
means of packaging
Examples of simple acts of
preparation:
a. Boiling
b. Broiling
c. Husking
d. Roasting
e. Stripping
f. Grinding
Examples of simple acts of
preservation:
a Freezing
b. Drying
c. Smoking
d. Salting
Packaging is not processing as it does not alter the
nature of the products.
- it merely involves putting the product in a medium
that makes it convenient for handling, storage or
marketing.
- goods may still be in their original state even if
they are packaged using advanced technological
means, such as:
a. Shrink wrapping in plastics
b. Vacuum packing
c. Tetra-packing
d. Other similar packaging methods
With simple act With simple act With acts of
of preparation of preservation packaging
Husked rice Sundried fruits Tetra-packed fresh
Corn grits Salted meat fruit juice
Raw cane sugar Smoked fish Shrink wrapped
Roasted beans Dried fish meat
Ordinary salt Frozen meat or
Ground meat fish
Copra
Boiled eggs
Lechon
 Processed agricultural or
marine food products
Processed agricultural or marine food products
pertain to those which have undergone changes in
their chemical compositions or have undergone
complex processing or treatment or are utilizing
advanced technologies in their processing.
Use or purpose dictates
vatability
Farm or fishery inputs
 Livestock Poultry Pets

Importation of X X √

Importation of X X √
feeds for

Importation of X X √
Ingredients for
Examples of vatable non-food
agricultural or marine products:
a. Logs, wood, bamboo, orchid, and similar forest products
b. Rubber hem, abaca, tobacco, topical herbs, cotton and
other non-food crops
c. Shells, corals, and other non-food marine products
usually used as ornaments
d. Race horses, fighting cocks, aquarium fish, zoo animals,
and other animals generally considered as pets
BOOKS, NEWSPAPERS, MAGAZINE,
REVIEW OR BULLETINS
- exemption is apparently based upon the
necessity of education and information.
Conditions for exemption of newspaper,
magazine review or bulletin:
1. They must appear at regular intervals with fixed
prices for subscription.
2. The sale must not be devoted principally to the
publication of paid advertisements.
PASSENGER OR CARGO VESSELS
AND AIRCRAFTS
- covers the import of passenger or cargo vessels and
aircrafts, including engine, equipment and spare parts
thereof for domestic or international transport operations.

- VAT exemption on the import of these items lapsed under

RA 9295 but was reinstated by RA 10378 and was codified
under the TRAIN law.
To qualify for exemption, the importation must be
subject to the requirements on restriction on vessel
importation and mandatory vessel retirement
program of the Marina Industry Authority (MARINA):

Passenger or cargo vessels - 15 years

Tankers - 10 years
High speed passenger crafts - 5 years
IMPORTATION BY VAT-EXEMPT
PERSONS
- VAT-exempt persons are not subject to VAT on importation.
- extent of their exemption varies per exempt persons.
- when an exempt importer subsequently sells his exempt
importation to a non-exempt person, the non-exempt buyer shall
be subject to VAT on importation. The tax due on such
importation shall constitute a lien on the goods, superior to all
charges or liens, irrespective of the possessor of said goods (Sec.
4.107-1(C). RR16-2005).
VAT-Exempt Persons under the
NIRC:
1. International shipping or air transport
operators
2. Agricultural cooperatives
3. Ecozone-locators
International shipping or air
transport operators
- exemption is limited to the importation of fuel, goods and
supplies.
- although these goods or supplies are physically brought
into the Philippines, they are not intended to be consumed
herein. They will ultimately be used in international
transport. This consumption is a foreign consumption rather
than domestic consumption.
Agricultural cooperatives
the status of agri-coop as VAT-exempt person is
limited to importation of direct farm inputs,
machineries and equipment, including their spare
parts (RA 9337)
Conditions for exemption:
1. The cooperative must be an agricultural cooperative duly
registered and in good standing with the Cooperative Development
Authority (CDA).
2. The importation involves direct farm inputs, machineries,
equipment andtheir spare parts to be used directly and exclusively
in the production orprocessing of their produce.
Ecozone-locators
- are designated places of economic activity for the
production of goods or services for the export market. By
legal fiction, economic zones are considered foreign
countries and are deemed outside Customs territory.
Technical Importation
- rules of VAT on importation apply to technical
importation by consumers in a customs territory
from persons located in Special Economic Zones
(Sec. 4.107-1, RR 16-2005).
Customs territory refers to the portion of the Republic of the
Philippines outside of designated special economic zones
(Ecozones).
“Technical importation” refers to the purchase of non-
Ecozone Philippine residents from Philippine Ecozone-registered
enterprises. By legal fiction, ecozones are considered foreign
territories. Hence, the purchase from Economic zones such as
but not limited to, Subic-Ecozone, Zambo-Ecozone and
Cagayan-Ecozone is subject to the VAT on importation.
QUASI-IMPORTATION
1. Import of personal and household effects belong to
residents of the Philippines returning from abroad or 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
Conditions for exemption:
1. The personal and household effects belong to Philippine
residents or non-residents intending to resettle in the
Philippines
2. The goods are exempt from Customs duties
Importation of professional instruments and
implements, wearing apparel, domestic
animal and personal household effects
Conditions for exemption:
1. The goods belong to persons who come to settle in the Philippines.
2. The goods must accompany the person upon arrival or within 90
days before or after his/her arrival.
3. There must be evidence to show that the change of residence is
bona fide.
4. The importation is not a vehicle, machinery or other equipment
used in the manufacture or merchandise of any kind in commercial
quantity.
 IMPORTATION EXEMPT UNDER
SPECIAL LAWS OR TREATIES
- Import that are exempted by special laws, treaties or
international agreements to which the Philippine
government is a signatory is not subject to the VAT on
importation.
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
Presumption 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. The burden of proof in establishing
VAT exemption rests upon the importer.
Tax basis of the VAT on importation

VAT on Importation = 12% of Total Landed Cost

Composition of landed cost:
A. Dutiable value
B. Oher in-land costs
1. Custom duty
2. Excise tax, if any
3.Other in-land costs, such as:
a. Bank charge e. Arrastre charge
b. Brokerage fee f. Documentary stamp tax
c. Arrastre charge g. Import processing fees
d. Wharfage due
Landed costs encompass all costs of importation
incurred prior to the withdrawal of the goods from
the warehouse of the Bureau of Customs, except
unofficial or illegal payments made.
Dutiable value/transaction value
- Refers to the total value used by the Bureau of
Customs in determining customs duties, such as:
1. Cost of the goods
2. Freight
3. Insurance
4. Other charges and costs to bring goods herein
 IMPORT OF SERVICES

1. VAT-exempt
2. Subject to specific percentage tax
3. Subject to final withholding VAT
Nature of the Final Withholding VAT

As a withholding tax, the obligation to withhold the

VAT technically exists only if:
1. the service is rendered within the Philippines; and
the
2. the payor-purchaser of the service is an individual
engaged in business or a corporation
VAT-EXEMPT IMPORT OF
SERVICES
The following are exempt from the final withholding VAT:
a. Purchase of services from non-residents when the service is
rendered abroad
b. Purchase of services from non-residents when the individual
purchaser 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
- Imposed on direct acquisition of insurance cover from
abroad.
- subject to a 5% percentage tax.
- the policyholder shall be liable for the taxes.
VATABLE IMPORT OF SERVICES
All other of import of services is subject to final
withholding VAT. The final withholding VAT is
computed as 12% of the contract price.
Payment of the withholding VAT

- BIR Form 1600

- due on or before 10th day of the ff. month,
except taxes w/held for December, amount
shall be due and payable on or before January
25 of the ff. 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 of
purchase 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.