TAX

II : SYLLABUS – VALUE-ADDED TAX Atty. Ma. Victoria A. Villaluz III. Transactions Subject to VAT
READ: Section 106, 107, 108 Tax Code as amended by the TRAIN Law
I. Nature of the VAT and underlying Laws a) Sale of Goods or Properties (sec. 106)
b) b.) Sale or Exchange of Services (sec. 108)
A. VAT is an Indirect Tax; Business Tax – c) Importation of Goods (Sec. 107)
VAT is a tax on consumption d) What is output VAT or output tax? What is input VAT or input tax?

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every:
apply to existing contracts of sale or lease of goods, properties or services at the time of the • sale,
effectivity of Republic Act No. 7716. (sec. 105 tax code) • barter or
• exchange of goods or properties,

B. Philippine VAT System value-added tax equivalent to ten percent (10%) of the gross selling price or gross value
Various amendatory laws in money of the goods or properties:
• sold,
II. Who are Liable for the VAT • bartered or exchanged,
Section 105, Tax Code such tax to be paid by the seller or transferor:
Provided, That the President, upon the recommendation of the Secretary of Finance,
SEC. 105. Persons Liable. - Any person who, in the course of trade or business: shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent(12%),
1. sells after any of the following conditions has been satisfied:
2. barters
3. exchanges (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
4. leases goods or properties the previous year exceeds two and four-fifth percent (2 4/5%); or
5. renders services, and (ii) National Government deficit as a percentage of GDP of the previous year exceeds
6. any person who imports goods 1
one and one-half percent (1 /2%).
shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
(1) "Goods or Properties." The term "goods" or "properties" shall mean all tangible and
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to intangible objects which are capable of pecuniary estimation and shall include:
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the (a) Real properties held primarily for sale to customers or held for lease in the ordinary
effectivity of Republic Act No. 7716. course of trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret
The phrase "in the course of trade or business" means the regular conduct or pursuit of a formula or process, goodwill, trademark, trade brand or other like property or
commercial or an economic activity, including transactions incidental thereto, by any person right;
regardless of whether or not the person engaged therein is a non-stock, nonprofit private (c) The right or the privilege to use in the Philippines of any industrial, commercial or
organization (irrespective of the disposition of its net income and whether or not it sells scientific equipment;
exclusively to members or their guests), or government entity. (d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code The term "gross selling price" means the total amount of money or its equivalent which the
rendered in the Philippines by nonresident foreign persons shall be considered as being purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
rendered in the course of trade or business. exchange of the goods or properties, excluding the value-added tax. The excise tax, if any,
on such goods or properties shall form part of the gross selling price.
Class notes:
Q: Who has the liability to pay VAT in the receipt?
A: The buyer, but the seller pre-pays it and then shifts the burden to the buyer.

Villaluz: Buyer is not liable, it is merely shirted to the buyer. Non-stock or non- profit
companies are still subject to VAT.

(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (D) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and
subsequently returned or for which allowances were granted by a VAT-registered person may
(a) Export Sales. - The term "export sales" means: be deducted from the gross sales or receipts for the quarter in which a refund is made or a
credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at
(1) The sale and actual shipment of goods from the Philippines to a foreign country, the time of sale and the grant of which does not depend upon the happening of a future event
irrespective of any shipping arrangement that may be agreed upon which may influence may be excluded from the gross sales within the same quarter it was given.
or determine the transfer of ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in goods or services, and accounted for in (E) Authority of the Commissioner to Determine the Appropriate Tax Base. - The
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); Commissioner shall, by rules and regulations prescribed by the Secretary of Finance, determine
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of
resident local export-oriented enterprise to be used in manufacturing, processing, goods or properties under Subsection (B) hereof, or where the gross selling price is
packing or repacking in the Philippines of the said buyer's goods and paid for in unreasonably lower than the actual market value.
acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP); SEC. 107. Value-Added Tax on Importation of Goods. -
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose (A) In General. - There shall be levied, assessed and collected on every importation of goods a
export sales exceed seventy percent (70%) of total annual production; value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and of Customs in determining tariff and customs duties plus customs duties, excise taxes, if any,
(5) Those considered export sales under Executive Order NO. 226, otherwise known as the and other charges, such tax to be paid by the importer prior to the release of such goods from
"Omnibus Investment Code of 1987", and other special laws; and customs custody: Provided, That where the customs duties are determined on the basis of the
(6) The sale of goods, supplies, equipment and fuel to persons engaged in international quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
shipping or international air transport operations. excise taxes, if any Provided, further, That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of the value-added tax to
(b) Foreign Currency Denominated Sale. - The phrase "foreign currency denominated sale" twelve percent (12%), after any of the following conditions has been satisfied:
means sale to a nonresident of goods, except those mentioned in Sections 149 and 150,
assembled or manufactured in the Philippines for delivery to a resident in the Philippines, (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
paid for in acceptable foreign currency and accounted for in accordance with the rules and previous year exceeds two and four-fifth percent (2 4/5%); or
regulations of the Bangko Sentral ng Pilipinas (BSP). (ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 ½ %).

(c) Sales to persons or entities whose exemption under special laws or international (B) Transfer of Goods by Tax-exempt Persons. - In the case of tax-free importation of goods
agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. into the Philippines by persons, entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale: entities, the purchasers, transferees or recipients shall be considered the importers thereof,
1. Transfer, use or consumption not in the course of business of goods or properties who shall be liable for any internal revenue tax on such importation. The tax due on such
originally intended for sale or for use in the course of business; importation shall constitute a lien on the goods superior to all charges or liens on the goods,
2. Distribution or transfer to: irrespective of the possessor thereof
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt; Notes:
3. Consignment of goods if actual sale is not made within sixty (60) days following the date Meaning of the phrase “in the course of trade or business”
such goods were consigned; and -regular conduct or pursuit of a commercial or an economic activity, including transactions
4. Retirement from or cessation of business, with respect to inventories of taxable goods incidental thereto, by any person
existing as of such retirement or cessation.
(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in REVENUE MEMORANDUM CIRCULAR NO. 15-2011:
Subsection (A) of this Section shall also apply to goods disposed of or existing as of a certain
date if under circumstances to be prescribed in rules and regulations to be promulgated by the Facts: This refers to the request of the Assistant Commissioner, Assessment Service for
Secretary of Finance, upon recommendation of the Commissioner, the status of a person as a revocation of BIR Ruling No. DA-563-2006 dated September 19, 2006 issued to the Interadent
VAT-registered person changes or is terminated. Zahntechnik Phils., Incorporated (IZPI), in connection with the decision of the Court of Tax
Appeals (CTA) in CTA E.B. Case No. 287 entitled "CS Garments, Inc. vs. Commissioner of
Internal Revenue."
 capital assets, specifically under the account, "Property, Plant and Equipment". The Rules on
Whereas, in the aforesaid BIR Ruling, it was held that IZPI’s sale of its company car is exempt International Accounting Standards (IAS) defines Property, Plant and Equipment as follows:
from VAT inasmuch as its regular line of business is the manufacturing and export of custom-
made dental products, it follows that it may only be subjected to 12% VAT on sales related to "6. Definitions
this kind of business activity; and that there is nothing to indicate that IZPI's sale of its company Property, plant and equipment are tangible assets that:
cars is made on a regular basis or even incidental to the manufacturing and/or export of dental 1. (a) are held by an enterprise for use in the production or supply of goods or services,
products. for rental to others, or for administrative purposes; and
2. (b) are expected to be used during more than one period."
Issue in the CS case: W/N the sale of motor vehicle by CS Garments to its General Manager is
a transaction incidental to the pursuit of a commercial and economic activity and, thus, subject Therefore, the sale of the motor vehicle is an incidental transaction because the said vehicle
to VAT contemplated under Sec. 105 of the Tax Code, as amended. was purchased and used in furtherance of petitioner's business.

CTA held in CS case: though the primary business of CS Garments is the manufacturing of Once an activity has been identified as a business, any supply [sale] made while carrying it on
garments for sale abroad, the sale of motor vehicle (Mercedez Benz) to its General Manager is is likely to be made in the course or furtherance of business. No distinction is made between
a transaction incidental to such business and, thus, subject to VAT. The sale of motor vehicle capital and revenue items. Thus, a supply [sale] in the course or furtherance of business
is an incidental transaction because the said vehicle was purchased and used in furtherance of includes:
CS Garments’ business. (1) the disposition of the assets and liabilities of a business,
(2) the disposition of a business as going concern; and
Held in RMC: Argument is without merit. (3) anything done in connection with the termination or intended termination of a business.”

Section 105 of the NIRC of 1997, as amended, states that: Accordingly, applying Section 105 of the 1997 Tax Code, as amended, and the ruling in the case
"SEC. 105. Persons Liable. — Any person who, in the course of trade or business, sells, barters, of CS Garments, the sale of company cars of IZPI to its officers should be subject to VAT, it
exchanges, leases goods or properties, renders services, and any person who imports goods being a transaction incident to the pursuit of its commercial or economic activity.
shall be subject to value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
In view of the foregoing, this Office hereby revokes BIR Ruling DA-563-2006 dated September
xxx xxx xxx 19, 2006.

"The phrase 'in the ordinary course of trade or business' means the regular conduct or pursuit All other existing rulings inconsistent herewith are likewise considered REVOKED.
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 Transactions incidental to the regular course of trade or business:
private organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity. Something necessary, appertaining to, or depending upon another which is termed the
principal, something incident to the main purpose.
Based on the foregoing, the VAT is imposed on a sale or transaction entered into by a person
in the course of any trade or business. A transaction will be characterized as having been REVENUE MEMORANDUM CIRCULAR NO. 15-2011:
entered into by a person in the course of trade or business if it is: Likewise, transactions that are made incidental to the pursuit of a commercial or economic
(1) regularly conducted; and activity are considered as entered into in the course of trade or business. "Incidental" means
(2) undertaken in pursuit of a commercial or economic activity. something else as primary; something necessary, appertaining to, or depending upon
another, which is termed the principal. Hence, an isolated transaction is not necessarily
Likewise, transactions that are made incidental to the pursuit of a commercial or economic disqualified from being made incidentally in the course of trade or business.
activity are considered as entered into in the course of trade or business. "Incidental" means
something else as primary; something necessary, appertaining to, or depending upon

another, which is termed the principal. Hence, an isolated transaction is not necessarily
Isolated transactions: BIR RULING [DA-641-04]
disqualified from being made incidentally in the course of trade or business.


Facts: Lilly US, Lilly Philippines, GSK and Duncan proposes to enter into a Memorandum of
Here, petitioner's primary business is the manufacturing of garments for sale abroad. In
Understanding (hereafter the "MOU") covering the sale of the portfolio of six (6) branded
carrying-out its business, petitioner acquired and eventually sold a Mercedes Benz to its
drugs: Axid (Nizatidine), Ceclor (Cefaclor), Dobutrex (Dobutamine HCL), Ilosone (Erythromycin
General Manager Mr. Sudhoff. Prior to the sale, the motor vehicle formed part of petitioner's
Estolate), Ke ex (Cephalexen Monohydrate) and Vancocin (Vancomycin), with Duncan
acquiring the Keflex brand. The MOU will include the following transactions: Issue: whether the sale by the National Development Company (NDC) of five (5) of its vessels
(1) Sale of trademarks and know-how by Lilly US to GSK and Duncan; to the private respondents is subject to value-added tax (VAT) under the National Internal
(2) Sale of respective Health Registration. Data, Manufacturing Know-How and Marketing Revenue Code of 1986 (Tax Code) then prevailing at the time of the sale. The Court of Tax
Know-How by Lilly Philippines to GSK and Duncan; Appeals (CTA) and the Court of Appeals commonly ruled that the sale is not subject to VAT.
(3) Sale of existing inventory of products and bulk materials by Lilly Philippines to GSK and
Duncan; and Held: We affirm, though on a more unequivocal rationale than that utilized by the rulings under
(4) Sale of medicines by Lilly Philippines to distributors for and on behalf of GSK and Duncan review. The fact that the sale was not in the course of the trade or business of NDC is
pending issuance of CPR's for each brand/product. sufficient in itself to declare the sale as outside the coverage of VAT.

Held: xxxx
1. On the sale of Trademark by Lilly US to GSK: Any sale, barter or exchange of goods or services not in the course of trade or business is not
xxxx subject to VAT.
(c) The sale of trademarks and related know-how by Lilly US to GSK and Duncan are not subject
to the 10% VAT pursuant to Section 105 of the Tax Code of 1997 for the reason that such sale SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. –
is not related to the regular commercial activity of Lilly US, nor is it incidental to the creation
and delivery by Lilly US of innovative pharmaceutical-based healthcare solutions. (BIR Ruling (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax
No. DA-510-03 dated December 17, 2003) equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties: Provided, That the President, upon the
2. Sale of Health Registration Data and Know-How, Manufacturing Know-How and recommendation of the Secretary of Finance, shall, effective January 1, 2006,raise the value-
Marketing Know-How added tax to twelve percent (12%), after any of the following conditions has been satisfied:
xxxx
(b) The sale of health registration data, manufacturing know-how by Lilly Philippines is not (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
subject to the 10% VAT pursuant to Section 105 of the Tax Code of 1997 since such sale is not previous year exceeds two and four-fifth percent (2 4/5%); or
made in the ordinary course of trade or business of Lilly Philippines. Similarly, the sale of (ii) National government deficit as a percentage of GDP of the previous year exceeds
1
marketing know-how is an isolated transaction not subject to the 10% VAT. (BIR Ruling No. DA- one and one-half percent (1 /2%).
510-03 dated December 17, 2003)
The phrase "sale or exchange of services" means the performance of all kinds of services in
3. Sale of Existing Inventory of Products and Bulk Materials the Philippines for others for a fee, remuneration or consideration, including those performed
or rendered by:
xxxx 1. construction and service contractors;
2. stock, real estate, commercial, customs and immigration brokers;
(b) The sale of existing inventory is subject to the 10% VAT on sale of goods pursuant to Section 3. lessors of property, whether personal or real;
106(A) of the Tax Code of 1997. 4. warehousing services;
5. lessors or distributors of cinematographic films;
4. Sale of Inventory by Lilly Philippines to Zuellig for and on behalf of GSK and/or Duncan 6. persons engaged in:
a. milling,
xxxx b. processing,
c. manufacturing or
(b) Since there is lack of authority on the part of GSK and Duncan to sell pending issuance of d. repacking goods for others;
their respective CPR's, Lilly Philippines, as the licensed manufacturer, shall issue its own 7. proprietors, operators or keepers of:
invoices and receipts to evidence the sales. Such being the case, Lilly Philippines shall be liable a. hotels,
for the 10% VAT due on the sales. Consequently, Lilly Philippines shall likewise be entitled to b. motels,
credit the input VAT paid on the importation, purchase or manufacture of the inventory sold. c. rest houses,
(BIR Ruling No. 004-04 dated February 11, 2004) d. pension houses,
Isolated transaction not made in the regular course of trade/business: e. inns,
f. resorts;
Commissioner of Internal Revenue v. Magsaysay Lines, Inc., G.R. No. 146984, [July 28, 2006], 8. proprietors or operators of:
529 PHIL 64-77: a. restaurants,
 b. refreshment parlors,
c. cafes and
d. other eating places,
e. including:
The term "gross receipts" means the total amount of money or its equivalent representing:
i. clubs and caterers;

ii. dealers in securities;
9. lending investors; • the contract price
10. transportation contractors on their transport of goods or cargoes, including persons who • compensation
transport goods or cargoes for hire another domestic common carriers by land relative to • service fee
their transport of goods or cargoes; • rental or royalty
11. common carriers by air and sea relative to their transport of:
a. passengers, including the amount charged for materials supplied with the services and deposits and
b. goods or advanced payments actually or constructively received during the taxable quarter for the
c. cargoes from one place in the Philippines to another place in the Philippines; services performed or to be performed for another person, excluding value-added tax.
12. sales of electricity by:
a. generation companies, (B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the
b. transmission, and distribution companies; Philippines by VAT- registered persons shall be subject to zero percent (0%) rate:
13. services of franchise grantees of:
a. electric utilities, (1) Processing, manufacturing or repacking goods for other persons doing business outside
b. telephone and telegraph, the Philippines which goods are subsequently exported, where the services are paid for
c. radio and television broadcasting and in acceptable foreign currency and accounted for in accordance with the rules and
d. all other franchise grantees regulations of the Bangko Sentral ng Pilipinas (BSP);
except those under section 119 of this Code, and non-life insurance companies (2) Services other than those mentioned in the preceding paragraph, rendered to a person
(except their crop insurances), including surety, fidelity, indemnity, and bonding engaged in business conducted outside the Philippines or to a nonresident person not
companies; and engaged in business who is outside the Philippines when the services are
14. similar services regardless of whether or not the performance thereof calls for the performed, the consideration for which is paid for in acceptable foreign currency and
exercise or use of the physical or mental faculties. accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP)
The phrase "sale or exchange of services" shall likewise include: (3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, supply of such services to zero percent (0%) rate;
plan secret formula or process, goodwill, trademark, trade brand or other like property or right; (4) Services rendered to persons engaged in international shipping or international air
(2) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment; transport operations, including leases of property for use thereof.
(3) The supply of scientific, technical, industrial or commercial knowledge or information; (5) Services performed by subcontractors and/or contractors in processing, converting, of
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of manufacturing goods for an enterprise whose export sales exceed seventy percent
enabling the application or enjoyment of any such property, or right as is mentioned in (70%) of total annual production.
subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3); (6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign
(5) The supply of services by a nonresident person or his employee in connection with the use of country; and
property or rights belonging to, or the installation or operation of any brand, machinery or (7) Sale of power or fuel generated through renewable sources of energy such as, but not
other apparatus purchased from such nonresident person. limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other
(6) The supply of technical advice, assistance or services rendered in connection with technical emerging energy sources using technologies such as fuel cells and hydrogen fuels.
management or administration of any scientific, industrial or commercial undertaking,
venture, project or scheme; What is output VAT or output tax? What is input VAT or input tax?
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable The term "input tax" means the value-added tax due from or paid by a VAT-registered person
television time. in the course of his trade or business on importation of goods or local purchase of goods or
(9) Lease of properties shall be subject to the tax herein imposed irrespective of the place where services, including lease or use of property, from a VAT-registered person. It shall also include
the contract of lease or licensing agreement was executed if the property is leased or used in the transitional input tax determined in accordance with Section 111 of this Code.
the Philippines.
The term "output tax" means the value-added tax due on the sale or lease of taxable goods or Correspondingly, the buyer of the property can claim the input tax in the same period as the
properties or services by any person registered or required to register under Section 236 of seller recognized the output tax.
this Code.
Sale on a deferred payment basis
notes: It means sale of real property, the initial payments of which in the year of sale exceed 25% of
Output VAT/Tax: the gross selling price.
- VAT paid by the supplier to the BIR.
- VAT that the seller, lessor, contactor pays to the BIR In this case, the transaction shall be treated as cash sale which makes the entire selling price
- VAT due on the sale/lease of taxable goods/properties or services by any person taxable in month of sale(R.R. 16-2005).
registered or required to register under the VAT system.
Output tax shall be recognized by the seller and input tax shall accrue to the buyer at the time
Input VAT/tax: of the execution of the instrument of sale. Payments that are subsequent to “initial payments”
- VAT due from or paid by a VAT registered person in the course of his trade or business. shall no longer be subject to output VAT (R.R. 4-2007).

Villaluz: the net amount of output tax after claiming the input tax credit (net output tax) VAT the term 'initial payments' means the payments received in cash or property other than
is paid on the mark up. evidences of indebtedness of the purchaser during the taxable period in which the sale or other
disposition is made. (sec. 49(B) tax code)
IV. Tax Base
A. Sale of Goods and Properties Initial payments
a. Definition of “gross selling price or gross value in money” It means payment or payments which the seller receives before or upon execution of the
instrument of sale and payments which he expects or is scheduled to receive in cash or
The term "gross selling price" means the total amount of money or its equivalent which the property (other than evidence of indebtedness of the purchaser) during the year when the sale
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or or disposition of the real property was made. It covers any down payment made and includes
exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on all payments actually or constructively received during the year of sale, the aggregate of which
such goods or properties shall form part of the gross selling price. determines the limit set by law.

b. Allowable deductions from the gross selling price: Initial payments do not include the amount of mortgage on the real property sold except when
such mortgage exceeds the cost or other basis of the property to the seller, in which case, the
Sec. 106 (D) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties excess shall be considered part of the initial payments.
sold and subsequently returned or for which allowances were granted by a VAT-registered
person may be deducted from the gross sales or receipts for the quarter in which a refund is Also excluded from initial payments are notes or other evidence of indebtedness issued by the
made or a credit memorandum or refund is issued. Sales discount granted and indicated in the purchaser to the seller at the time of the sale.
invoice at the time of sale and the grant of which does not depend upon the happening of a
future event may be excluded from the gross sales within the same quarter it was given. Real estate dealer includes any person engaged in the business of buying, developing, selling,
exchanging real properties as principal and holding himself out as a full or part-time dealer in
c. VAT base for sale of real properties real estate.

The sale of real property subject to VAT shall either be in:
(1) cash basis, B. Importation of Goods
(2) installment basis, or
(3) deferred payment basis. Importation is an act of bringing goods and merchandise into a country (Philippines) from a
foreign country.
Sale on installment plan
It means sale of real property by a real estate dealer, the initial payments of which in the year VAT is imposed on goods brought into the Philippines, whether for use in business or not,
of sale do not exceed 25% of the gross selling price. except those specifically exempted under Section 109(1) of the NIRC.
In this case, the real estate dealer shall be subject to VAT on the installment payments,
including interest and penalties, actually and/or constructively received by the seller. Purpose: This is to protect our local or domestic goods or articles and to regulate the entry or
introduction of foreign articles to our local market.

a. VAT is based on the same amount on which the Bureau of Customs (BOC) computes Gross receipts
tariff and customs duties It pertains to the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials
Sec. 107 (A) In General. - There shall be levied, assessed and collected on every importation of supplied with the services and deposits and advanced payments
goods a value-added tax equivalent to 12 percent (12%) based on the total value used by the
Bureau of Customs in determining: (1)actually or
• tariff and customs duties plus customs duties, (2)constructively received
• excise taxes, if any,
• and other charges during the taxable quarter for the services performed or to be performed for another person,
excluding VAT, except those amounts earmarked for payment to unrelated third (3rd) party or
such tax to be paid by the importer prior to the release of such goods from customs received as reimbursement for advance payment on behalf of another which do not redound
custody: to the benefit of the payor (service provider).

Provided, That where the customs duties are determined on the basis of the quantity A payment is a payment to a third (3rd) party if the same is made to settle an obligation of
or volume of the goods, the value-added tax shall be based on the landed cost plus another person. Such obligation should be evidenced by the sales invoice/ official receipt
excise taxes issued by the said third party to the customer/client of the service provider.

Tax base of VAT on importation An advance payment is an advance payment on behalf of another if the same is paid to a third
(3rd) party for a present or future obligation of said customer/client which obligation is
GR: The tax base shall be based on the total value used by the BOC in determining tariff and evidenced by a sales invoice/official receipt issued by the creditor (3rd party) to the
customs duties plus customs duties, excise taxes, if any, and other charges to be paid by the customer/client (the aforementioned another party) for the sale of goods or services by the
importer prior to the release of such goods from customs custody. (Transaction value) former to the latter.

XPN: In case the valuation used by the BOC in computing customs duties is based on volume For this purpose, ‘unrelated party’ shall not include taxpayer’s employees, partners, affiliates
or quantity of the imported goods, the landed cost shall be the basis for computing VAT. (parent, subsidiary and other related companies), relatives by consanguinity or affinity within
the fourth (4th) civil degree, and trust fund where the taxpayer is the trustor, trustee or
Landed cost consists of the invoice amount, customs duties, freight, insurance and other beneficiary, even if covered by an agreement to the contrary (Sec. 11, R.R. 04-2007).
charges. If the goods imported are subject to excise tax, the excise tax shall form part of the
tax base. i. What is excluded from the term “gross receipts”
The same rule applies to technical importation of goods sold by a person located in a Special VAT.
Economic Zone to a customer located in a customs territory (Sec. 4.107-1, R.R. 16-2005).
b. What is constructive receipt
Payment of tax on imported goods
The VAT on importation shall be paid by the importer prior to the release of such goods from Constructive receipt
customs custody. It occurs when the money consideration or its equivalent is placed at the control of the person
who rendered the service without restrictions by the payor.
Importer refers to any person who brings goods into the Philippines, whether or not made in
the course of his trade or business. It includes non-exempt persons or entities who acquire tax- Examples of constructive receipts:
free imported goods from exempt persons, entities or agencies. 1. Deposit in banks which are made available to the seller without restrictions.
2. Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof
by the seller as payment for services rendered.
C. Sale of Services including Lease of Properties 3. Transfer of the amounts retained by the payor to the account of the contractor. (RR 16-
2005)
Sale or exchange of services, as well as the use or lease of properties, shall be subject to VAT,
equivalent to 12% of the gross receipts (excluding VAT) (RR 16-2005). c. VAT on Non-resident lessors of property

a. Definition of the term “gross receipts” “Non-resident lessor/owner” refers to any person, natural or juridical, an alien, or a citizen
who establishes to the satisfaction of the Commissioner of Internal Revenue the fact of his
physical presence abroad with a definite intention to reside therein, and who owns/leases 4. Retirement from or cessation of business with respect to all goods on hand, whether
properties, real or personal, whether tangible or intangible, located in the Philippines. 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 (Sec.
Licensee shall be responsible for the payment of VAT on such rentals and/or royalties on behalf 106 (B) NIRC).
of the non-resident foreign corporation/ owner.
Transactions that are considered retirement or cessation of business
Notes:
VAT is based on the contract price agreed upon by the licensor and licensee responsible for 1. Change of ownership of the business. There is change in the ownership of the business
payment of VAT in behalf of the Non-resident foreign corporation. when a single proprietorship incorporates; or the proprietor of a single proprietorship
sells his entire business.
V. Transactions Deemed Sale – Section 106 (B), Tax Code 2. Dissolution of a partnership and creation of a new partnership which takes over the
business (Sec. 4.106- 7, R.R. 16-2005).
Sec. 106 (B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
1. Transfer, use or consumption not in the course of business of goods or properties Consideration in determining whether a transaction is “deemed sale”
originally intended for sale or for use in the course of business; Before considering whether the transaction is “deemed sale”, it must first be determined
2. Distribution or transfer to: whether the sale was in the ordinary course of trade or business or not. Even if the transaction
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or was “deemed sale” if it was not done in the ordinary course of trade or business or was not
(b) Creditors in payment of debt; originally intended for sale in the ordinary course of business, the transaction is not subject to
3. Consignment of goods if actual sale is not made within sixty (60) days following the date VAT (CIR v. Magsaysay Lines Inc., G.R. No. 146984, July 28, 2006).
such goods were consigned; and
4. Retirement from or cessation of business, with respect to inventories of taxable goods Tax base of transactions deemed sale
existing as of such retirement or cessation. In cases where a transaction is a deemed sale, barter or exchange of goods or where the selling
price is unreasonably lower than the actual market value, the Commissioner shall determine
There is no actual sale of goods took place but such transactions are subject to VAT. the appropriate tax base.

In a transaction deemed sale, the input VAT was already used by the seller as a credit against NOTE: The gross selling price is unreasonably lower than the actual market value if it is lower
output VAT. However, since there was no actual sale, no output VAT is actually charged to by more than 30% of the actual market value of the same goods of the same quantity and
customers. Consequently, the State will be deprived of its right to collect the output VAT. To quality sold in the immediate locality on or nearest the date of sale (Sec. 4 106-7, R.R. 16-2005).
avoid the situation where a VAT registered taxpayer avail of input VAT credit without being
liable for corresponding output VAT, certain transactions should be considered sales even in The output tax shall be based on the market value of the goods deemed sold as of the time of
the absence of actual sale (Tabag, 2015) the occurrence of the transactions enumerated above in numbers 1, 2, and 3.
.
The following are transactions deemed sale and therefore subject to VAT: [CORD] However, in the case of retirement or cessation of business, the tax base shall be the
1. Transfer, use or consumption not in the course of business of goods or properties acquisition cost or the current market price of the goods or properties, whichever is lower.
originally intended for sale or for use in the course of business (i.e., when a VAT-registered
person withdraws goods from his business for his personal use) In the case of a sale where the gross selling price is unreasonably lower than the fair market
2. Distribution or transfer to: value, the actual market value shall be the tax base (Sec. 4 106-7, R.R. 16- 2005).
a. Shareholders or investors as share in the profits of the VAT-registered persons
NOTE: Property dividends which constitute stocks in trade or properties primarily held for Nonetheless, if one of the parties in the transaction is the government as defined and
sale or lease declared out of retained earnings on or after January 1, 1996 and distributed contemplated under the Administrative Code, the output VAT on the transaction shall be
by the company to its shareholders shall be subject to VAT based on the zonal value or based on the actual selling price (Sec. 7, R.R. 4- 2007).
fair market value at the time of distribution, whichever is applicable (Sec. 106.7, R.R. 16-
2005). Inventory used for promotions and office supplies
b. Creditors in payment of debt Goods given for free in the course of trade or business in order to promote sales efforts are
3. Consignment of goods if actual sale is not made within sixty (60) days following the date not considered deemed sale transactions (VAT Ruling No. 109-88, April 25, 1988).
such goods were consigned.
NOTE: Consigned good returned by the consignee within the 60-day period are not READ :
deemed sold. BIR RULING [DA-(VAT-050) 282-09], dated June 5, 2009

Facts: Maple Resources Development Corporation, a company engaged in the business of between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes
wood processing, lumbering & wood-working, requested for a ruling on the following: are due to the Government in its sovereign capacity. . . ."

1. Were the capital assets and company's non-trade inventories taken by creditors subject Thus, any claim for tax credit or refund of alleged excess input tax by a VAT registered taxpayer
to value-added tax (Output tax)? pursuant to Sections 110 and 112 both of the Tax Code of 1997, shall be subject to verification
2. Could the Company offset the accumulated input taxes against its obligation to the by this Office pursuant to existing rules and regulations. Accordingly, until after the amount
Government (Bureau of Internal Revenue)? claimed as input taxes have been finally determined to be legally due to the taxpayer, and a
3. Could the company ask for refund of the excess input taxes after applying the latter tax credit certificate issued therefore, no automatic offsetting of the amount claimed as input
against its obligations? tax against the tax liability of the taxpayer can be allowed. (BIR Ruling No. 415-93 dated
October 15, 1993)
It is represented that the Company imported its raw materials from foreign countries and paid
the value-added tax (input taxes) to the appropriate district of the Bureau of Internal Revenue, Issue #3: Moreover, should there be an excess input tax, Maple has the option to apply for a
though the sellers were foreigners and not covered by the Laws of the Philippine government; tax credit or a refund of the same. A Tax Credit Certificate duly issued by this Office shall upon
that the Company has accumulated input taxes, but unfortunately, the Company stopped its proper application, be allowed to be used in payment of its other tax liabilities.
operation two (2) years ago due to unfavorable economic conditions in our country, lack of
raw materials and high exchange rate; that the Company was left with no income thus, cannot VAT RULING NO. 011-02, dated March 6, 2002
pay anymore its payables to its creditors; and that the Company's capital assets and defective Facts: Executive and Tourist Aviation, Inc., a domestic corporation, 100% owned by Chemical
company's non-trade inventories were taken by creditors Industries of the Philippines, Inc. (CIP) and a non-pioneer firm registered with the Board of
Investments (BOI); that on October 25, 1991, was granted by the BOI authority to import tax
Held: and duty-free one (1) unit Beechcraft Super King Aire B200 with Serial No. BB-989, US reg.
Issue #1: The taking of the capital assets and company's non-trade inventories by the creditors N5200 for US$1,437,700 however, due to severe losses from the very first year of your
of Maple Resources Development Corporation are subject to value-added tax at the rate of operations the Board of Directors and Stockholders in separate meetings held on January 6,
12% based on the acquisition cost or the current market price of the goods or properties, 1997 resolved and approved:
whichever is lower. • the cessation of all business operations;
• assign your assets, including the particular aircraft to CIP as liquidating dividends and for
For transactions deemed sale, the output tax, in case of retirement or cessation of business, CIP to assume all your obligations;
shall be the acquisition cost or the current market price of the goods or properties, whichever that when Executive and Tourist Aviation, Inc., requested for a BIR tax clearance as required
is lower. This likewise applies to all goods on hand, whether capital goods, stock in trade, by SEC they were told that the transfer of their assets to CIP falls under the category of a
supplies or materials as of the date of retirement or cessation of business. "deemed sale" transaction and therefore subject to VAT;
Executive and Tourist Aviation, Inc., explained to the BIR examiners assigned to their case that
Furthermore, Sec. 4.110-1 (d) of Revenue Regulations No. 16-2005 provides, viz.: they have ceased operations and CIP merely took your assets as sole sale owner in the form of
liquidating dividends.
"Any input tax on the following transactions evidenced by a VAT invoice or o cial receipt issued
by a VAT-registered person in accordance with Secs. 113 and 237 of the Tax Code shall be Issue: W/N Executive and Tourist Aviation, Inc., are not subject to VAT since the transfer of
creditable against the output tax: SEDIaH your assets was done in the course of liquidation in settlement of equity claims of your sole
xxx xxx xxx stockholders, CIP.

(d) Transactions "deemed sale" under Sec. 106(B) of the Tax Code; Held: they are subject to VAT:
xxx xxx xxx" please be informed that your contention is not meritorious. Pursuant to Section 106(B)(1) of
the Tax Code of 1997 which provides that —
Issue #2: On the issue of offsetting, the Supreme Court in Philex Mining Corporation vs.
Commissioner of Internal Revenue, Court of Appeals, and The Court of Tax Appeals "Sec. 106. Value-added tax on Sale of Goods or Properties. —
"(B) Transactions Deemed Sale. — The following transactions shall be deemed sale;
(G.R. No. 125704 dated August 28, 1998) citing the cases of Francis v. Intermediate Appellate "(1) Transfer, use or consumption not in the course of business of goods or properties originally
Court (162 SCRA 753) and Caltex Philippines v. Commission on Audit (208 SCRA 726) ruled that intended for sale or for use in the course of business;"
— "xxx xxx xxx.:

". . . taxes cannot be subject to compensation for the simple reason that the government and the sale not in the course of business of all the properties which are originally intended for use
the taxpayer are not creditors and debtors of each other. There is a material distinction
in the course of business, is transaction "deemed sale" which is subject to VAT under paragraph
(A) of the same Section 106 of the 1997 Tax Code. These refer to the sale of goods or properties and/or services and the use or lease of properties
that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input
Such being the case, the transfer by Executive and Tourist Aviation, Inc. (ETAI) of all its assets tax) on purchases.
now 12%
including the aircraft in question to its sole stockholder, CIP, is subject to the 10% VAT imposed
under Section 106(A) of the 1997 Tax Code. (BIR Ruling No. 057- 99 dated April 27, 1999) The person making the exempt sale of goods, properties or services shall not bill any output
tax to his customers because the said transaction is not subject to VAT (Sec 4.109-1, R.R. No.
VI. ZERO-RATED and VAT-EXEMPT Transactions- 16-2005).
READ- TRAIN LAW:
Sec. 106 (A)(ii)(2) of tax code: Reason for electing VAT registration
A VAT-registered person who opted to be subject to VAT may avail of the input tax credit. The
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: input tax is deducted from the output tax thereby reducing his tax liabilities but a VAT-
registered person who opted to be exempt therefrom cannot avail of the input tax credit. Thus
(a) Export Sales. - The term "export sales" means: a VAT-registered person may choose to be subjected to rather than exempt from payment of
1. The sale and actual shipment of goods from the Philippines to a foreign country, VAT.
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported and paid
for in acceptable foreign currency or its equivalent in goods or services, and b. What is a zero-rated transaction (SEC. 4.106-5.RR 13-2018)
accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP); Zero-rated sale by a VAT-registered person is a taxable transaction for VAT purposes but the
sale does not result in any output tax. However, the input tax on the purchases of goods,
2. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a properties or services related to such zero-rated sale shall be available as tax credit or refund.
resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods and paid for in To be subject to zero tax-rate, however, the seller must be a VAT-registered person because if
acceptable foreign currency and accounted for in accordance with the rules and he is not VAT registered, the transactions entered into by him are exempt from the tax.
regulations of the Bangko Sentral ng Pilipinas (BSP);
Purpose: To exempt the transaction completely from VAT previously collected since input
3. Sale of raw materials or packaging materials to export-oriented enterprise whose taxes passes to him may be recovered as refund or credits (Ingles, 2015).
export sales exceed seventy percent (70%) of total annual production;
The zero-rated seller becomes internationally competitive by allowing the refund or credit of
4. Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and input taxes that are attributable to export sales (CIR v. Seagate Technology (Phil.), G.R. No.
153866, Feb. 11, 2005).
5. Those considered export sales under Executive Order NO. 226, otherwise known as Zero Rated VAT Exempt
the "Omnibus Investment Code of 1987", and other special laws; and It generally refers to the export sale of good In VAT-exempt sales, the taxpayer/seller shall
and supply of services. The output tax rate is not bill any output tax on his sales to his
6. The sale of goods, supplies, equipment and fuel to persons engaged in international set at zero. When applied to the tax base, customers
shipping or international air transport operations. such rate obviously results in no tax and corollarily, is not allowed any credit or
chargeable against the purchaser. refund of the input taxes he paid on his
(b) Foreign Currency Denominated Sale. - The phrase "foreign currency denominated sale" purchases.
means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, The seller of such transactions charges no
assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid output tax but can claim a refund or tax credit This non-crediting of input taxes is exempt
for in acceptable foreign currency and accounted for in accordance with the rules and certificate for the VAT previously charged by transactions is the underlying reason why the
regulations of the Bangko Sentral ng Pilipinas (BSP). suppliers(AT&T Communications Services NIRC adopted the rule on apportionment of
Phils., Inc. v. CIR, G.R. No. 182364, August 3, tax credits under Section 104(A) whenever a
(c) Sales to persons or entities whose exemption under special laws or international 2010). VAT-registered taxpayer engages in other VAT
agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. taxable and non-VAT taxable sales (CIR v.
(effectively zero rated) No VAT shall be shifted or passed-on by VAT- Eastern Telecomm. Phils., Inc., G.R. No.
registered sellers or suppliers from the 163835, July 7, 2010).
a. What is a VAT-exempt transaction (SEC. 4.109-1. RR 13-2018)
 Customs Territory on their sale, barter or e) Those considered as export sales under the Omnibus Investment Code of 1987(E.O. 226)
exchange of goods, properties or services to
the subject registered Freeport Zone “Considered export sales under EO 226” shall mean the Philippine port F.O.B. value
enterprises. determined from invoices, bills of lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by a registered export producer,
Simply put, the difference lies in the input tax. In VAT- exempt transactions there is no input or the net selling price of export products sold by a registered export producer to another
tax credit allowed. In the case of 0% rated transaction of a VAT registered person, the sale of export producer, or to an export trader that subsequently export the same;
goods or properties is multiplied by 0% thus his output tax is P 0.00. If the person is VAT
registered, he may claim such input tax as tax credit or refund. Provided, that sales of export products to another producer or to an export trader shall only
E.g.: be deemed export sales when actually exported by the latter, as evidenced by landing
Output tax P 0.00 certificates or similar commercial documents.
Less: Input tax 5,000.00
Excess input tax P 5, 000.00 Provided, further, That without actual exportation the following shall be considered
constructively exported for purposes of these provisions:
Basis Exempt Zero Rated 1. sales to bonded manufacturing warehouses of export-oriented manufacturers;
Nature of Not taxable; removes VAT at Transaction is taxable for VAT 2. sales to export processing zones;
Transaction the exempt stage purposes although the tax levied is 3. sales to registered export traders operating bonded trading warehouses supplying raw
0% materials in the manufacture of export products under guidelines to be set by the Board
By Whom made Need not be a VAT- registered Made by a VAT- registered person in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs
person (BOC);
Input Tax Not subject to output tax, May claim input tax credit although 4. sales to diplomatic missions and other agencies and/or instrumentalities granted tax
thus cannot claim input tax the transaction resulted to zero immunities, of locally manufactured, assembled or repacked products whether paid for
credit. output tax. in foreign currency or not.
Tax Cannot avail of tax credit or Can claim or enjoy tax credit/refund
Credit/Refund refund. Thus, may result in (Total Relief) For purposes of zero-rating, the export sales of registered export traders shall include
increased prices (Partial commission income. The exportation of goods on consignment shall not be deemed export
Relief) sales until the export products consigned are in fact sold by the consignee; and Provided,
finally, that sales of goods, properties or services made by a VAT-registered supplier to a BOI-
Zero rated Sales of Goods: (SEC. 4.106-5.) registered manufacturer/producer whose products are 100% exported are considered export
1. Export sales sales. A certification to this effect must be issued by the Board of Investment (BOI) which shall
2. Foreign currency denominated sale be good for one year unless subsequently re-issued by the BOI.
3. Effectively zero-rated sales
f) The sale of goods, supplies, equipment and fuel to persons engaged in international
1. Export Sales: shipping or international air transport operations; Provided, That the same is limited to
The term export sales means: [FINE GO] goods, supplies, equipment and fuel pertaining to or attributable to the transport of
a) The sale and actual shipment of goods from the Philippines to a Foreign country: goods and passengers from a port in the Philippines directly to a foreign port without
1. irrespective of any shipping arrangement; and docking or stopping at any other port in the Philippines; Provided, further, that if any
2. paid for in acceptable foreign currency or its equivalent in goods or services and portion of such fuel, goods or supplies is used for purposes other than that mentioned in
accounted for in accordance with the rules and regulations of BSP. this paragraph, such portion of fuel, goods and supplies shall be subject to 10% VAT.
b) Sale of raw materials or packaging materials by a VAT registered entity to a Non-resident
buyer: Rationale for zero-rating exports sale
1. for delivery to a resident local export-oriented enterprise; The Philippine VAT system adheres to the cross border doctrine, according to which, no VAT
2. used in the manufacturing, processing, packing, repacking in the Philippines of the said shall be imposed to form part of the cost of goods destined for consumption outside of the
buyer’s goods; territorial border of the taxing authority.
3. paid for in acceptable foreign currency and accounted in accordance with the rules of BSP.
c) Sale of raw material or packaging materials to Export oriented enterprise whose export Export sale; when exempted, when zero-rated:
sales exceed 70% of total annual production
d) Sale of Gold to BSP Rules on Export Sales
By a non-VAT registered VAT exempt
 By a -VAT registered VATable at 0% (zero rated)



c. Zero-rated Transactions- Section 106 of the Tax Code, as amended by the TRAIN LAW Basis Effectively Zero Rated Automatic Zero Rated
c.1. Automatically zero-rated transactions Nature Refers to sales to persons or Refers to export sales and foreign
entities whose exemption currency denominated sales
2. Foreign currency denominated sale: under special laws or
international agreements to
The phrase 'foreign currency denominated sale' means sale to a nonresident of goods, except which the Philippines is a
those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for signatory
delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted Need to An application for zero-rating No need to file an application form
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) (Sec. apply for must be filed and the BIR and to secure BIR approval before
106[A][2][b], NIRC). zero rating approval is necessary before the the sale is considered zero-rated.
transaction
NOTE: Section 149 refers to excise tax on automobiles. Section 150 refers to excise tax on non- may
essential goods. considered effectively zero-
rated.
Sales of locally manufactured or assembled goods for household and personal use to Filipinos For whose Intended to benefit the Primarily intended to be enjoyed by
abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under benefit it is purchaser who, not being the seller who is directly and legally
the Internal Export Program of the government paid for in convertible foreign currency and intended directly and legally liable for the
liable for the VAT, making such
accounted for in accordance with the rules and regulations of the BSP shall also be considered payment of the VAT, will seller
export sales. ultimately bear the burden of internationally competitive by
the tax shifted by the suppliers allowing the refund or credit of
Requisites: input taxes that are attributable to
export sales.
1. The buyer must be a non-resident; Stamping of Required. Not required.
2. The goods sold must be assembled or manufactured in the Philippines; “zero-
3. Goods sold are to be delivered to a resident of the Philippines; and rated” on The buyer, as shown by his The buyer, as shown by his address
4. Paid for in acceptable foreign currency and accounted for in accordance with the rules VAT invoice address in the sales invoice and in the sales invoice and shipping
and regulations of the BSP. or receipt shipping documents, is located documents, is located outside the
outside the Philippines merely Philippines.
by fiction of law.
c.2. Effectively zero-rated transactions
3. Effectively zero-rated sales: Effect Results in no tax chargeable against the purchaser.

SEC. 4.106-5(b), RR 13-2018: The seller can claim a refund or a tax credit certificate for the VAT
previously charged by suppliers
Sales to persons or entities whose exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects such sales to zero rate.

The term “effectively zero-rated sale of goods and properties” shall refer to the local sale of Zero Rated Sale of Service: (SEC. 4.108-5, RR 13-2018)
goods and properties by a VAT-registered person to a person or entity who was granted
indirect tax exemption under special laws or international agreement. (a) In general. – A zero-rated sale of service (by a VAT-registered person) is a taxable
transaction for VAT purposes, but shall not result in any output tax. However, the input tax on
Since the buyer is exempt from indirect tax, the seller cannot pass on the VAT and therefore, purchases of goods, properties or services related to such zero-rated sale shall be available as
the exemption enjoyed by the buyer shall extend to the seller, making the sale effectively zero- tax credit or refund in accordance with these Regulations.
rated (R.M.C. 50-2007).
The following services performed in the Philippines by VAT- registered persons shall be subject Destination principle: Under this principle, goods and services are taxed only in the country
to zero percent (0%) rate: where these are consumed. Thus, exports are zero-rated, but imports are taxed.
1. Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported, where the services are paid for Applying the destination principle to the exportation of goods, automatic zero rating is
in acceptable foreign currency and accounted for in accordance with the rules and primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT,
regulations of the BSP; making such seller internationally competitive by allowing the refund or credit of input taxes
2. Services other than those mentioned in the preceding paragraph rendered to a person that are attributable to export sales. Effective zero rating, on the contrary, is intended to
engaged in business conducted outside the Philippines or to a nonresident person not benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will
engaged in business who is outside the Philippines when the services are performed, the ultimately bear the burden of the tax shifted by the suppliers.
consideration for which is paid for in acceptable foreign currency and accounted for in In both instances of zero rating, there is total relief for the purchaser from the burden of the
accordance with the rules and regulations of the BSP i.e. recruitment; tax. But in an exemption there is only partial relief, because the purchaser is not allowed any
3. Services rendered to persons or entities whose exemption under special laws or tax refund of or credit for input taxes paid. (Commissioner of Internal Revenue v. Seagate
international agreements to which the Philippines is a signatory effectively subjects the Technology (Philippines), G.R. No. 153866, [February 11, 2005], 491 PHIL 317-351)
supply of such services to 0% rate;
4. Services rendered to persons engaged in international shipping or international air VAT RULING NO. 025-02, April 25, 2002:
transport operations, including leases of property for use thereof;
5. Services performed by subcontractors and/or contractors in processing, converting, or Facts: It is represented and is alleged that Toshiba Information Equipment (Phils.), Inc. (TIEPI)
manufacturing goods for an enterprise whose export sales exceed 70% of total annual is a corporation duly organized and existing under the Philippine laws; that on September 27,
production; 1997, TIEPI was registered as an export enterprise with the PEZA with Certificate of
6. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign Registration No. 95-99; that under its Registration Agreement with the PEZA, TIEPI's registered
country; and activity is to manufacture Hard Disk Drives, CD-ROM Drives, and Printed Circuit Boards for
7. Sale of power or fuel generated through renewable sources of energy such as, but not personal computers; that these products are produced exclusively for export; that pursuant to
limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other the Trademark Licensing Agreement, TIEPI is granted a non-exclusive license to use Toshiba
emerging energy sources using technologies such as fuel cells and hydrogen fuels (Sec. Corporation's (Toshiba) trademarks whereas the Technical Collaboration Agreement grants a
108, NIRC as amended by R.A. 9337). non-exclusive right to use Toshiba's patents and technical information; and that these licensing
agreements are duly registered with the Bureau of Patents, Trademarks and Technology
Services other than processing manufacturing, or repacking of goods (Sec 108 (B)(2) Transfer.
Requirements to qualify for zero-rating
1. The services other than “processing, manufacturing or repacking of goods” must be Issue: W/N royalties paid by a Philippine Economic Zone Authority (PEZA) registered enterprise
performed in the Philippines, to a non-VAT registered non-resident foreign licensor relative to a Trademark Licensing
2. That the payment for such services be in acceptable foreign currency accounted for Agreement and Technical Collaboration Agreement is exempt from value-added tax (VAT).
in accordance with BSP rules, and that
3. The recipient of such services is doing business outside of the Philippines. Held: Please be informed that the Philippine VAT System adopts the destination principle
wherein imports are taxed while exports are given total immunity. This system of taxation,
Services rendered to persons engaged in international shipping or international air transport when applied to goods crossing borders, is designed to make our local products competitive in
operations the foreign market. In line with this principle which is the backbone of the Philippine VAT
In order to qualify for zero-rating, the services rendered by a VAT-registered person to a person System, the royalty payments by TIEPI to Toshiba are exempt from VAT whether at the time it
engaged in international air transport operations must pertain to or must be attributable to enjoys income tax holiday or at the time that it is subject to the 5% commutation tax.
the transport of goods and passengers from a port in the Philippines directly to a foreign port Otherwise, TIEPI will be required to shoulder the VAT on inputs, which will be added-up to the
without docking or stopping at any port in the Philippines. export cost of its products. It is on this principle that the royalty payments by TIEPI to Toshiba
shall be exempt from VAT so that the PEZA locator would be truly relieved from the burden of
Accordingly, the services provided by hotels to their clients engaged in international air indirect tax consonant with the "Cross Border Doctrine" thereby ensuring that the export price
transport operations pertaining to room accommodations and food and beverage services of the commodities has no VAT component. (VAT Ruling No. 63-2001).
should be subject to the 12% VAT. As they are rendered within the hotel's premises, they have
no direct connection with the transport of goods or passengers, and as such, they cannot be In view thereof, and considering that your client's foreign licensor is a non-VAT registered non-
considered as services directly attributable to the transport of goods and passengers from a resident foreign licensor, your client's aforesaid royalty payments are accordingly exempt from
Philippine port directly to a foreign port entitled to zero-rating (RMC No. 031-11). the VAT. Consequently, your client is also exempt from the obligation to withhold and remit
the 10% VAT on its payments and remittances of the aforesaid royalties, which otherwise
Notes: would be due thereon pursuant to the provisions of the Section 110 of the National Internal
 Revenue Code, as amended by R.A. No. 7716, and as implemented by Section 4.110-3 of
Revenue Regulations (RR) No. 7-95, otherwise known as the "Consolidated VAT Regulations." (H) Educational services rendered by private educational institutions, duly accredited by the
(Section 4.107-1(d), RR No. 7- 95, VAT Ruling Nos. 09-98, 017-2001 and 039-2001) Department of Education (DepED), the Commission on Higher Education (CHED), the
d. VAT-EXEMPT Transactions-Section 109, as amended by the TRAIN LAW Technical Education and Skills Development Authority (TESDA)and those rendered by
SEC. 109. Exempt Transactions. – ( and RR 13-2018) government educational institutions;

(1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be (I) Services rendered by individuals pursuant to an employer-employee relationship;
exempt from the value-added tax:
(J) Services rendered by regional or area headquarters established in the Philippines by
(A) Sale or importation of agricultural and marine food products in their original state, livestock multinational corporations which act as supervisory, communications and coordinating
and poultry of or king generally used as, or yielding or producing foods for human centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn
consumption; and breeding stock and genetic materials therefor. or derive income from the Philippines;

Products classified under this paragraph shall be considered in their original state even (K) Transactions which are exempt under international agreements to which the Philippines is a
if they have undergone the simple processes of preparation or preservation for the signatory or under special laws, except those under Presidential Decree No. 529;
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 (L) Sales by agricultural cooperatives duly registered with the Cooperative Development
copra shall be considered in their original state; Authority 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
(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and equipment, including spare parts thereof, to be used directly and exclusively in the
poultry feeds, including ingredients, whether locally produced or imported, used in the production and/or processing of their produce;
manufacture of finished feeds (except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered as pets); (M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered
with the Cooperative Development Authority;
(C) Importation of personal and household effects belonging to the residents of the Philippines (N) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the
returning from abroad and nonresident citizens coming to resettle in the Philippines: Cooperative Development Authority: Provided, That the share capital contribution of each
Provided, That such goods are exempt from customs duties under the Tariff and Customs member does not exceed Fifteen thousand pesos (P15, 000) and regardless of the aggregate
Code of the Philippines; capital and net surplus ratably distributed among the members;

(D) Importation of professional instruments and implements, wearing apparel, domestic (O) Export sales by persons who are not VAT-registered;
animals, and personal household effects (except any vehicle, vessel, aircraft, machinery
other goods for use in the manufacture and merchandise of any kind in commercial quantity) (P) Sale of real properties not primarily held for sale to customers or held for lease in the
belonging to persons coming to settle in the Philippines, for their own use and not for sale, ordinary course of trade or business.
barter or exchange, accompanying such persons, or arriving within ninety (90) days before
or after their arrival, upon the production of evidence satisfactory to the Commissioner, that However, even if the real property is not primarily held for sale to customers or held for
such persons are actually coming to settle in the Philippines and that the change of residence lease in the ordinary course of trade or business but the same is used in the trade or
is bona fide; business of the seller, the sale thereof shall be SUBJECT TO VAT being A TRANSACTION
INCIDENTAL to the taxpayer’s main business.
(E) Services subject to percentage tax under Title V enumerated:
1) Sale or lease of goods or properties or the performance of services of non-VAT- Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise
registered persons, other than the transactions mentioned in paragraphs (A) to (AA) known as the "Urban Development and Housing Act of 1992" and other related laws.
of Sec. 109(1) of the Tax Code, the gross annual sales and/or receipts of which does
not exceed the amount of Three Million Pesos (P3,000,000.00). "Low-cost housing" refers to housing projects intended for homeless low-income family
beneficiaries, undertaken by the Government or private developers, which may either be a
(F) Services by agricultural contract growers and milling for others of palay into rice, corn into subdivision or a condominium registered and licensed by the Housing and Land Use Regulatory
grits and sugar cane into raw sugar; Board/Housing (HLURB) under BP Blg. 220, PD No. 957 or any other similar law, wherein the
unit selling price is within the selling price per unit as set by the Housing and Urban
(G) Medical, dental, hospital and veterinary services except those rendered by professionals. Development Coordinating Council (HUDCC) pursuant to RA No. 7279 otherwise known as the
“Urban Development and Housing Act of 1992” and other laws.
 Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other The term ‘residential units’ shall refer to apartments and houses & lots used for residential
related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is purposes, and buildings or parts or units thereof used solely as dwelling places (e.g.,
P450,000.00 or as may from time to time be determined by the HUDCC and the NEDA and dormitories, rooms and bed spaces) EXCEPT motels, motel rooms, hotels and hotel rooms,
other related laws. lodging houses, inns and pension houses.

"Socialized housing" refers to housing programs and projects covering houses and lots or The term ‘unit’ shall mean an apartment unit in the case of apartments, house in the case of
home lots only undertaken by the Government or the private sector for the underprivileged residential houses; per person in the case of dormitories, boarding houses and bed spaces; and
and homeless citizens which shall include sites and services development, long-term financing, per room in case of rooms for rent.
liberated terms on interest payments, and such other benefits in accordance with the
provisions of RA No. 7279, otherwise known as the "Urban Development and Housing Act of (R) Sale, importation, printing or publication of books and any newspaper, magazine review or
1992" and RA No. 7835 and RA No. 8763. "Socialized housing" shall also refer to projects bulletin which appears at regular intervals with fixed prices for subscription and sale and
intended for the underprivileged and homeless wherein the housing package selling price is which is not devoted principally to the publication of paid advertisements;
within the lowest interest rates under the Unified Home Lending Program (UHLP) or any
equivalent housing program of the Government, the private sector or non- government (S) Transport of passengers by international carriers;
organizations.
(T) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
Sale of residential lot valued at P1,500,000.00 and below, or house & lot and other residential equipment and spare parts thereof for domestic or international transport operations;
dwellings valued at P2,500,000.00 and below, as adjusted in 2011 using the 2010 Consumer
Price Index values. (U) Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations;
If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the
purpose of utilizing the lots as one residential lot, the sale shall be EXEMPT from VAT only if (V) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and
the aggregate value of the lots do not exceed P1,500,000.00. Adjacent residential lots, other non-bank financial intermediaries; an
although covered by separate titles and/or separate tax declarations, when sold or disposed
to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall be (W) Sale or lease of goods and services to senior citizens and persons with disabilities, as provided
presumed as a sale of one residential lot. under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act
Expanding the Benefits and Privileges of Persons with Disability), respectively
(Q) Lease of residential units with a monthly rental per unit not exceeding P15,000.00.
(X) Transfer of Property pursuant to Section 40(C)(2) of the Tax Code, as amended;
The foregoing notwithstanding, lease of residential units where the monthly rental per unit
exceeds P15,000.00, but the aggregate of such rentals of the lessor during the year do not (Y) Association dues, membership fees, and other assessments and charges collected on a
exceed P3,000,000.00 shall likewise be EXEMPT from VAT; however, the same shall be subject purely reimbursement basis by homeowners’ associations and condominium corporations
to 3% percentage tax under Section 116 of the Tax Code. established under Republic Act No. 9904 (Magna Carta for Homeowners and Homeowners’
Association) and Republic Act No. 4726 (The Condominium Act), respectively;
In cases where a lessor has several residential units for lease, some are leased out for a
monthly rental per unit of not exceeding P15,000.00 while others are leased out for more (Z) Sale of gold to the Bangko Sentral ng Pilipinas;
than P15,000.00 per unit, his tax liability will be as follows:
(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension to
1.) The gross receipts from rentals not exceeding P15,000.00 per month per unit shall be beginning January 1, 2019 as determined by the Department of Health; and
EXEMPT from VAT regardless of the aggregate annual gross receipts. It is also
EXEMPT FROM THE 3% PERCENTAGE TAX. 
 (BB) Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts
2.) The gross receipts from rentals exceeding P15,000.00 per month per unit shall be
do not exceed the amount of Three Million Pesos (P3,000,000.00).
SUBJECT TO VAT if the aggregate annual gross receipts from said units only exceeds

P3,000,000.00. Otherwise, the gross receipts will be subject to the 3% tax imposed
Self-employed individuals and professionals availing of the 8% tax on gross sales and/or
under Section 116 of the Tax Code. 

receipts and other non-operating income, under Sections 24(A)(2)(b) and 24(A)(2)(c)(2)(a) of
this Code shall also be EXEMPT from the payment of twelve (12%) VAT.
In case of mixed transactions, the abovementioned rule should be observed.
VII. Transactions/Services that are Currently Zero-rated BUT will be Eventually Subject to (b) Transactions Subject to Zero Percent (0%) VAT Rate. – The following services performed in
VAT the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate:
a. Enhanced VAT refund system- READ TRAIN Law and Rev. Regs. No. 13-2018
(4) Services rendered to persons engaged in international shipping or air transport operations,
SEC. 4.106-5 (a), RR 13-2018: including leases of property for use thereof: Provided, that these services shall be exclusively
1 2 3
Provided, That items (2) , (3) , and (4) abovementioned shall be subject to the twelve percent for international shipping or air transport operations. Thus, the services referred to herein shall
(12%) VAT and no longer be subject to zero percent (0%) VAT rate upon satisfaction of the not pertain to those made to common carriers by air and sea relative to their transport of
following conditions: 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
1. The successful establishment and implementation of an enhanced VAT refund system Code.
that grants and pays refunds of creditable input tax within ninety (90) days from the filing
4 5
of the VAT refund application with the Bureau: Provided that, to determine the effectivity Provided, That Subparagraphs (b)(1) and (b)(5) abovementioned shall be subject to the
of Item no. 1, all applications filed from January 1, 2018 shall be processed and decided twelve percent (12%) VAT and no longer be subject to zero percent (0%) VAT rate upon
within ninety (90) days from the filing of the VAT refund application. satisfaction of the following conditions:

The 90-day period to process and decide, pending the establishment of the enhanced VAT 1. The successful establishment and implementation of an enhanced VAT refund system
Refund System shall only be up to the date of approval of the Recommendation Report on such that grants and pays refunds of creditable input tax within ninety (90) days from the filing
application for VAT refund by the Commissioner or his duly authorized representative. of the VAT refund application with the Bureau: Provided that, to determine the effectivity
of Item no. 1, all applications filed from January 1, 2018 shall be processed and decided
However, all claims for refund/tax credit certificate filed prior to January 1, 2018 shall still be within ninety (90) days from the filing of the VAT refund application.
governed by the one hundred twenty (120)-day processing period.
The 90-day period to process and decide, pending the establishment of the enhanced VAT
The Secretary of Finance shall provide transitory rules for the grant of refund under the Refund System shall only be up to the date of approval of the Recommendation Report
enhanced VAT Refund System after the determination of the fulfilment of the condition by the on such application for VAT refund by the Commissioner or his duly authorized
Commissioner of Internal Revenue as provided in item 1 paragraph 1 hereof; and representative.
However, all claims for refund/tax credit certificate filed prior to January 1, 2018 shall still
2. All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by be governed by the one hundred twenty (120)-day processing period.
December 31, 2019.
The Secretary of Finance shall provide transitory rules for the grant of refund under the
Provided, That Department of Finance shall establish a VAT refund center in the BIR and in the enhanced VAT Refund System after the determination of the fulfilment of the condition
Bureau of Customs (BOC) that will handle the processing and granting of cash refunds of by the Commissioner of Internal Revenue as provided in item 1 paragraph 1 hereof; and
creditable input tax.
2. All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by
SEC. 4.108-3. Definitions and Specific Rules on Selected Services. - December 31, 2019.
xxx xxx xxx
(f) Sale of electricity by generation, transmission by any entity including the National Grid Provided, That Department of Finance shall establish a VAT refund center in the BIR and in the
Corporation of the Philippines (NGCP), and distribution companies including electric Bureau of Customs (BOC) that will handle the processing and granting of cash refunds of
cooperatives shall be subject to twelve percent (12%) VAT on their gross receipts. creditable input tax.
xxx xxx xxx
VIII. VAT-EXEMPT Transactions- Option to be VAT-registered
SEC. 4.108-5. Zero Rated Sale of Services. – a. Optional registration- it shall be irrevocable for a period of 3 years counted from the quarter

1 3
(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented (4) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of
enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods, paid for in 1987, and other special laws.
acceptable foreign currency, and accounted for in accordance with the rules and regulations of the BSP 4
(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which goods are
2
(3) The sale of raw materials or packaging materials to an export- oriented enterprise whose export sales exceed seventy percent subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the
(70%) of total annual production. rules and regulations of the BSP
Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable year shall be considered an 5
(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise
export-oriented enterprise.
whose export sales exceed seventy percent (70%) of the total annual production;
when the election was made EXCEPT for franchise grantees of radio and TV broadcasting been completed, it will not qualify as capital goods as herein defined, in which case, input
whose annual gross receipts for the preceding year do not exceed P10M where the option tax credit on such transaction can be recognized in the month the payment was made:
becomes perpetually irrevocable. Provided, that an official receipt of payment has been issued based on the progress billings.

In case of contract for the sale of service where only the labor will be supplied by the contractor
IX.Tax Credits and the materials will be purchased by the contractee from other suppliers, input tax credit on
the labor contracted shall still be recognized on the month the payment was made based on a
a. Claim for Input Tax on Depreciable Goods- capital goods progress billings while input tax on the purchase of materials shall be recognized at the time
the materials were purchased.
• Definition of Capital goods
Once the input tax has already been claimed while the construction is still in progress, no
Capital goods or properties refers to goods or properties with estimated useful life greater additional input tax can be claimed upon completion of the asset when it has been reclassified
than one (1) year and which are treated as depreciable assets under Sec. 34(F) of the Tax Code, as a depreciable capital asset and depreciated. (RR. 13-2018, SEC. 4.110-3 (b))
used directly or indirectly in the production or sale of taxable goods or services.
X. Claims for Refund/Credit of Input Tax
The aggregate acquisition cost of depreciable assets in any calendar month refers to the total
price, excluding the VAT, agreed upon for one or more assets acquired and not on the RR 16-2005
payments actually made during the calendar month. Thus, an asset acquired on installment for
an acquisition cost of more than P1,000,000.00, excluding the VAT, will be subject to the SEC. 4.110-1. Credits For Input Tax. -- “Input tax” means the VAT due on or paid by a VAT-
amortization of input tax despite the fact that the monthly payments/installments may not registered person on importation of goods or local purchases of goods, properties, or services,
exceed P1,000,000.00. (RR. 13-2018, SEC. 4.110-3 (b)) including lease or use of properties, in the course of his trade or business. It shall also include
the transitional input tax and the presumptive input tax determined in accordance with Sec.
• Estimated useful life is 5 years or more 111 of the Tax Code.

Input tax shall be spread evenly over a period of sixty (60) months and the claim for input tax It includes input taxes which can be directly attributed to transactions subject to the VAT plus
credit will commence in the calendar month when the capital good is acquired. The total input a ratable portion of any input tax which cannot be directly attributed to either the taxable or
taxes on purchases or importations of this type of capital goods shall be divided by 60 and the exempt activity.
quotient will be the amount to be claimed monthly.
Any input tax on the following transactions evidenced by a VAT invoice or official receipt issued
• Estimated useful life is LESS than 5 years by a VAT-registered person in accordance with Secs. 113 and 237 of the Tax Code shall be
creditable against the output tax:
The input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual
number of months comprising the estimated useful life of the capital good. The claim for input b.) Purchase or importation of goods
tax credit shall commence in the calendar month that the capital goods were acquired. 1) For sale; or
2) For conversion into or intended to form part of a finished product for sale,
Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable including packaging materials; or
capital goods purchased or imported during any calendar month does not exceed One million 3) For use as supplies in the course of business; or

pesos (P 1,000,000.00), the total input taxes will be allowable as credit against output tax in 4) For use as raw materials supplied in the sale of services; or
the month of acquisition. (RR. 13-2018, SEC. 4.110-3 (b)) 5) For use in trade or business for which deduction for depreciation or
amortization is allowed under the Tax Code
b. Construction in Progress (CIP) c.) Purchase of real properties for which a VAT has actually been paid;
d.) Purchase of services in which a VAT has actually been paid;
Construction in progress (CIP) is the cost of construction work which is not yet completed. CIP e.) Transactions “deemed sale” under Sec. 106 (B) of the Tax Code;
is not depreciated until the asset is placed in service. Normally, upon completion, a CIP item is f.) Transitional input tax allowed under Sec. 4.111 (a) of these Regulations;
reclassified and the reclassified asset is capitalized and depreciated. g.) Presumptive input tax allowed under Sec. 4.111 (b) of these Regulations;
h.) Transitional input tax credits allowed under the transitory and other provisions of
CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of these Regulations.
which shall be determined based on the progress billings. Until such time the construction has
SEC. 4.110-2. Persons Who Can Avail of the Input Tax Credit. -- The input tax credit on SEC. 4.111-1. Transitional/Presumptive Input Tax Credits.--
importation of goods or local purchases of goods, properties or services by a VAT- registered
person shall be creditable: (a) Transitional Input Tax Credits on Beginning Inventories
Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of
a.) To the importer upon payment of VAT prior to the release of goods from customs P1,500,000.00 in any 12-month period, or who voluntarily register even if their turnover does
P3,000,000.00
custody; not exceed P1,500,000.00
P3,000,000.00 (except franchise grantees of radio and television broadcasting
b.) To the purchaser of the domestic goods or properties upon consummation of the whose threshold is P10,000,000.00) shall be entitled to a transitional input tax on the inventory
sale; or on hand as of the effectivity of their VAT registration, on the following:
c.) To the purchaser of services or the lessee or licensee upon payment of the 1.) goods purchased for resale in their present condition;
compensation, rental, royalty or fee. 2.) materials purchased for further processing, but which have not yet
undergone processing;
SEC. 4.110-8. Substantiation of Input Tax Credits. -- 3.) goods which have been manufactured by the taxpayer;
4.) goods in process for sale; or
a.) Input taxes for the importation of goods or the domestic purchase of goods, 5.) goods and supplies for use in the course of the taxpayer’s trade or business
properties or services is made in the course of trade or business, whether such input as a VAT-registered person.
taxes shall be credited against zero-rated sale, non-zero-rated sales, or subjected to
the 5% Final Withholding VAT, must be substantiated and supported by the following The transitional input tax shall be two percent (2%) of the value of the beginning inventory on
documents, and must be reported in the information returns required to be hand or actual VAT paid on such, goods, materials and supplies, whichever is higher, which
submitted to the Bureau: amount shall be creditable against the output tax of VAT-registered person. The value
1) For the importation of goods - import entry or other equivalent document allowed for income tax purposes on inventories shall be the basis for the computation of the
showing actual payment of VAT on the imported goods. 2% transitional input tax, excluding goods that are exempt from VAT under Sec. 109 of the Tax
2) For the domestic purchase of goods and properties – invoice showing the Code.
information required under Secs. 113 and 237 of the Tax Code.
3) For the purchase of real property – public instrument i.e., deed of absolute (b) Presumptive Input Tax Credits
sale, deed of conditional sale, contract/agreement to sell, etc., together with
VAT invoice issued by the seller. Persons or firms engaged in the processing of sardines, mackerel, and milk, and in
4) For the purchase of services – official receipt showing the information manufacturing refined sugar, cooking oil and packed noodle-based instant meals, shall be
required under Secs. 113 and 237 of the Tax Code. 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
A cash register machine tape issued to a registered buyer shall constitute valid proof of inputs to their production.
substantiation of tax credit only if it shows the information required under Secs. 113 and 237
of the Tax Code. As used in this paragraph, the term processing shall mean pasteurization, canning and
activities which through physical or chemical process alter the exterior texture or form or
b.) Transitional input tax shall be supported by an inventory of goods as shown in a inner substance of a product in such manner as to prepare it for special use to which it could
detailed list to be submitted to the BIR. not have been put in its original form or condition.
c.) Input tax on “deemed sale” transactions shall be substantiated with the invoice
required under Sec. 4.113-2 of these Regulations. RR 13-2018
d.) Input tax from payments made to non-residents (such as for services, rentals and 1. Zero-rated and Effectively zero-rated-
royalties) shall be supported by a copy of the Monthly Remittance Return of Value
Added Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of the non- SEC. 4.112-1. Claims for Refund/ Credit of Input Tax. –
resident evidencing remittance of VAT due which was withheld by the payor.
e.) Advance VAT on sugar shall be supported by the Payment Order showing payment (a) Zero-rated and Effectively Zero-rated Sales of Goods, Properties or Services
of the advance VAT. A VAT-registered person whose sales of goods, properties or services are zero-rated
or effectively zero-rated may apply for the issuance of a tax refund of input tax
attributable to such sales. The input tax that may be subject of the claim shall exclude
the portion of input tax that has been applied against the output tax. The application
should be filed within two (2) years after the close of the taxable quarter when such
sales were made.
 In case of zero-rated sales under Secs. 106(A)(2)(a)(1) and (3), Secs. 108(B)(1) and (2) clearance/s by the appropriate BIR Office which has
of the Tax Code, the payments for the sales must have been made in acceptable jurisdiction over the taxpayer.
foreign currency duly accounted for in accordance with the BSP rules and
regulations. 3. Where should claim be filed
o BIR Office (Large Taxpayers Service)
o Allocation of input tax credits between zero- rated/effectively zero-rated o Revenue District Office having jurisdiction over the principal place of
and vatable transactions business of the taxpayer (RDO)
Ø Where the taxpayer is engaged in both zero-rated or effectively Note: Claims for input tax refund of direct exporters shall be exclusively
zero- rated sales and in taxable (including sales subject to final filed with the VAT Credit Audit Divisions (VCAD)
withholding VAT) or exempt sales of goods, properties or
services, and the amount of creditable input tax due or paid 4. Period within which the refund or tax credit will be made
cannot be directly and entirely attributed to any one of the o CIR shall grant refund for creditable input taxes within 90 days from the
transactions, only the proportionate share of input taxes date of submission of the official receipts or invoices and other documents
allocated to zero-rated or effectively zero-rated sales can be Ø IF grant of refund is NOT PROPER, the Commissioner must state
claimed for refund or issuance of a tax credit certificate. in writing the legal and factual basis for the denial.
Ø In the case of a person engaged in the transport of passenger Ø The 90 day period to process and decide, pending the
and cargo by air or sea vessels from the Philippines to a foreign establishment of the enhanced VAT Refund System shall only be
country, the input taxes shall be allocated ratably between his up to the date of approval of the Recommendation Report on
zero-rated sales and non-zero-rated sales (sales subject to such application for VAT refund by the Commissioner or his duly
regular rate, subject to final VAT withholding and VAT-exempt authorized representative
sales). Ø In case of FULL or PARTIAL DENIAL of the claim for tax refund,
the taxpayer affected may, within 30 days from the receipt of
o When should claim be filed the decision DENYING the claim, appeal the decision with the
Ø The application should be filed within two (2) years after the CTA
close of the taxable quarter when such sales were made. v Failure on the part of any official, agent, or employee
of the BIR to act on the application within the 90 day
2. Cancellation of VAT registration period shall be punishable under Sec. 269 of the Tax
o DUE TO: Code
Ø Retirement or;
Ø Cessation of business or; 5. Manner of giving refund; VAT refund Center
Ø Changes in or cessation of status under Sec. 106 (C) of Tax Code o Refund shall be made upon warrants drawn by the CIR or by his duly
authorized representative without the necessity of being countersigned by
When should claim be filed the Chairman, COA, the provision of the Revised Administrative Code to
Ø within two (2) years from the date of cancellation the contrary notwithstanding
v Apply for the issuance of tax credit certificate for any Ø Provided, that refunds under this paragraph shall be subject to
unused input tax which he may use in payment of his post audit by the COA.
other internal revenue taxes o The Department of Finance shall establish a VAT refund center in the BIR
v Provided, however, that he shall be entitled to a refund and in the Bureau of Customs (BOC) that will handle the processing and
if he has no internal revenue tax liabilities against granting of cash refunds of creditable input tax.
which the tax credit certificate may be utilized o An amount equivalent to 5% of the total VAT collection of the BIR and the
Ø the date of cancellation being referred hereto is the date of BOC from the immediately preceding year shall be automatically
issuance of tax clearance by the BIR, after full settlement of all appropriated annually and shall be treated as a special account in the
tax liabilities relative to cessation of business or change of status general fund or as trust receipts for the purpose of funding claims for VAT
of the concerned taxpayer refund: Provided, That any unused fund, at the end of the year shall revert
v Provided finally, that the filing of the claim shall be to the general fund.
made only after completion of the mandatory audit
of all internal revenue tax liabilities covering the
immediately preceding year and the short period
return and the issuance of the applicable tax
 XI. Invoicing Requirements An invoice shall be prepared for the entire inventory, which shall be the basis of the entry
1. A VAT-registered person shall issue: into the subsidiary sales journal. The invoice need not enumerate the specific items appearing
a. A VAT invoice for every barter or exchange of goods or properties; and in the inventory, but it must show the total amount. It is sufficient to just make a reference to
b. A VAT official receipt for every lease of goods or properties, and for every the inventory regarding the description of the goods. However, the sales invoice number
sale, barter or exchange of services. should be indicated in the inventory filed and a copy thereof shall form part of this invoice. If
NOTE: Only VAT-registered persons are required to print their TIN the business is to be continued by the new owners or successors, the entire amount of output
followed by the word “VAT” in their invoice or official receipts. Said tax on the amount deemed sold shall be allowed as input taxes. If the business is to be
documents shall be considered as a “VAT Invoice” or VAT official receipt. liquidated and the goods in the inventory are sold or disposed of to VAT-registered buyers, an
invoice or instrument of sale or transfer shall to prepared citing the invoice number wherein
2. Information contained in VAT invoice or VAT Official receipt the tax was imposed on the deemed sale. At the same time the tax paid corresponding to the
a. A statement that the seller is a VAT-registered person, followed by his goods sold should be separately indicated in the instrument of sale.
TIN;

b. The total amount which the purchaser pays or is obligated to pay to the
seller with the indication that such amount includes the VAT: XII. Filing of VAT Returns- READ-Rev.Regs. 13-2018
i. The amount of tax shall be shown as a separate item in the o Every person liable to pay the VAT imposed under this Title shall file a
invoice or receipt; quarterly return of the amount of his gross sales or receipts within 25
ii. If the sale is exempt from VAT, the term “VAT-exempt sale” shall days following the close of each taxable quarter prescribed for each
be written or printed prominently on the invoice or receipt; taxpayer.
iii. If the sale is subject to zero percent (0%) VAT, the term “zero- o The term “taxable quarter” shall mean that quarter that is synchronized
rated sale” shall be written or printed prominently on the invoice with the income tax quarter of the taxpayer (i.e., the calendar quarter or
or receipt; fiscal quarter)
iv. If the sale involves goods, properties or services some of which Ø Provided, however, That VAT-registered persons shall pay the
are subject to and some of which are VAT zero-rated or VAT- VAT on a monthly basis.
exempt, the invoice or receipt shall clearly indicate the break- Ø Provided, finally That beginning January 1, 2023, the filing and
down of the sale price between its taxable, exempt and zero- payment required under the Tax Code shall be done within 25
rated components, and the calculation of the VAT on each days following the close of each taxable quarter.
portion of the sale shall be shown on the invoice or receipt. The
seller has the option to issue separate invoices or receipts for the XIII. Withholding of VAT on Government Money Payments and Payments to Non-
taxable, exempt, and zero-rated components of the sale. Residents- READ- SEC.4-114-2., Rev. Regs. 13-2018
o The Government or any of its political subdivisions, instrumentalities or
c. In the case of sales in the amount of one P1,000.00 or more where the sale agencies, including GOCCs shall, before making payment on account of
or transfer is made to a VAT-registered person, the name, business style, each purchase of goods and services which are subject to the VAT imposed
if any, address and TIN of the purchaser, customer or client, shall be in Sections 106 and 108 of this Code, deduct and withhold the VAT
indicated in addition to the information required in (a) and (b) imposed in Sections 106 and 108 of this Code, deduct and withhold a final
VAT at the rate of 5% of the gross payment thereof.
SEC. 4.113-2. Invoicing and Recording Deemed Sale Transactions.-- In the case of Sec. 4.106- Ø Provided, that beginning January 1, 2021, the VAT withholding
7(a) (1) of these Regulations, a memorandum entry in the subsidiary sales journal to record system under this subsection shall shift from final to a creditable
withdrawal of goods for personal use is required. In the case of Sec. 4.106-7(a) (2) and (3) of system
these Regulations, an invoice shall be prepared at the time of the occurrence of the Ø Provided, That the payment for lease or use of properties or
transaction, which should include, all the information prescribed in Sec. 4.113-1. The data property rights to nonresident owners shall be subject to 12%
appearing in the invoice shall be duly recorded in the subsidiary sales journal. The total amount withholding tax at the time of payment
of “deemed sale” shall be included in the return to be filed for the month or quarter. Ø Provided, however, that payments for purchase of goods and
services arising from projects funded by Official Development
In the case of Sec. 4.106-7(a) (4) an inventory shall be prepared and submitted to the RDO Assistance (ODA) as defined under Republic Act No. 8182,
who has jurisdiction over the taxpayer’s principal place of business not later than 30 days after Otherwise known as the “Official Development Assistance Act of
retirement or cessation from business. 1996,” as amended, shall not be subject to the Final/Creditable
Withholding Taxes as imposed in this subsection.