BUSINESS AND TRANSFER TAXATION 2019

Chapter 9
EXEMPT SALES OF GOODS, PROPERTIES & SERVICES
EXEMPT SALES
Exempt sales are exempt consumption of goods, properties or services from domestic sellers. Exempt
sales are not subject to VAT and percentage tax.
Hence,
1. VAT taxpayer making exempt sale of goods, properties or services shall not bill any output VAT
to his customers because the sale is not subject to VAT.
2. A non-VAT person making exempt sales shall not be subject to the 3% percentage tax on the
sales.
Exempt Sales of Goods, Properties or Services
1. Sale of Agricultural and marine food products in their original state.
2. Sales of fertilizers, seeds, seedlings and fingerlings, fish, prawns, livestock and poultry feeds,
including ingredients used in the manufacture of finished feeds.
3. Services by agricultural contract growers and milling for others of palay into rice, corn into corn
grits, and sugar cane into raw sugar.
4. Educational services rendered by private educational institution duly accredited by the Department
of Education, Commission on Higher Education and Technical Education and Skill Development
Authority and those rendered by government educational institution.
5. Services performed by individuals in pursuant to an employer and employee relationship
6. Medical, dental, hospital and veterinary services, except those rendered by professionals and sales
drug by a hospital drug store
7. Transport of passengers by international carriers (RA 10378)
8. Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia Pacific Region and do not or derive income from the
Philippines.
9. Sales of Agricultural cooperatives duly registered in good standing with the Cooperative
Development Authority to their members, as well as sales of their produce, whether in its original
state or processed form, to non-members; their importation of direct farm inputs, machineries and
equipment including spare parts thereof, to be used directly and exclusively in the production and
or processing of their produce.
10. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and
in good standing with the Cooperative Development Authority
11. Sales by non-agricultural, non-electric and non-credit cooperative duly registered and in good
standing in the CDA
12. Exempt Sales of Real properties:
a. Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of business.
b. Sale of real properties utilized for low-cost housing priced at P450,000.
c. Sale of real properties utilized for socialized housing priced at P450,000.
d. Sale of Residential lot other residential dwelling valued at P3,000,000 and below.
13. Lease of residential unit with monthly rental not exceeding P15,000.

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 BUSINESS AND TRANSFER TAXATION 2019
14. Sale, printing or publication of books and any newspaper, magazine, review, or bulletin which
appear at regular intervals with fixed prices for subscription and sale and which is not devoted
principally to the publication and paid advertisements.
15. Sale or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare
parts thereof domestic or international transport operation.
16. Export sales by non-VAT persons.
17. Transactions which are exempt under international agreement to which the Philippine is a
signatory or under special laws
AGRICULTURAL OR MARINE FOOD PRODUCTS IN ORIGINAL STATE
Related provisions in this category are:
a. Sale of agricultural and marine food products in their original state, livestock and poultry
of a kind generally used as, or yielding or producing foods for human consumptions; and
breeding stock and genetic materials therefore;
b. Sale of fertilizers; seeds, seedlings, ad fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or imported, used in the manufacture of
finished feeds, except specialty feeds;
c. Services of agricultural contract growers
Sale of Agricultural or Marine Food Products in Original State
Sale of agricultural or marine food products in their original state including those that have undergone the
simple process of preparation or preservation for the market including advance technological means of
packaging is exempt.
Sale of Certain Farm or Fishery Inputs
Exemption is qualified and limited:
- For plants or fruit cultivation – fertilizers, seeds and seedlings
- For animal husbandry – livestock, feeds and ingredients for livestock and poultry feeds
- For fishery operations - fingerlings, fish, prawn
Livestock/poultry feeds or ingredients in the manufacture of feeds
The sale of livestock or poultry feeds and ingredients used in the manufacture of finished feeds is exempt
from VAT.
Services by agricultural contract growers and milling for others of palay into rice, corn into grits,
and sugar cane into raw sugar;
Agricultural contract growers – refers to persons producing for others poultry, livestock or other
agricultural and marine food products in their original state.
HEALTH OR HOSPITAL SERVICES
Medical, dental, hospital and veterinary services, except those rendered by professionals and sales
of drug by a hospital drug store
The sale of the above services is not subject to business tax. This rule applies to all health services
whether rendered by a private, non-profit or government hospital. Health services rendered by
professionals and the sale of drugs are vatable.
EMPLOYMENT
Services performed by individuals in pursuant to an employer and employee relationship
The provision of services to an employer under an employer-employee relationship is not a business.
Hence, exempt from business taxes.

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 BUSINESS AND TRANSFER TAXATION 2019
Professional practitioners, consultants, talents, TV artist, brokers, and agents are not employees, hence,
subject to business taxes.
REGIONAL OR AREA HEADQUARTER OF A MULTINATIONAL COMPANY
Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which acts as supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia Pacific Region and do not or derive income from the
Philippines.
A regional or area headquarter (RAH or RHQ) is an integral part of the multinational corporation. It is not
a separate business or a branch but an administrative office which do not derive income on its own; hence,
not subject to business tax. On the other hand, a regional operating headquarter (ROHQ) is taxable.
SALE OR LEASE OF AIRCRAFT OR SEA VESSELS, INCLUDING ENGINE, EQUIPMENT AND
SPARE PARTS THEREOF FOR DOMESTIC OR INTERNATIONAL OPERATION
The sale or lease of aircraft or sea vessel including engine, equipment and spare parts thereof for domestic
or international transport is exempt from business tax. This pertains to the same passenger or cargo
vessels and aircraft exempt from importation.
EDUCATION
Related in this category are:
a. Schools
b. Books, newspapers, magazine, review or bulletin
Educational services rendered by private educational institution duly accredited by Department of
Education, the Commission on Higher Education and Technical Education and Skills Development
Authority and those rendered by government educational institution.
Considering that education is a necessity, the law exempts school fees from business taxes. This
exemption covers government and private schools, proprietary or non-profit, so long as they have the
required accreditation from the government.
The exemption does not cover seminars, in-service trainings, review classes and other similar services
rendered by educational institutional institutions that are not accredited by the DepEd, the CHED and/or
TESDA.
Sale, printing or publication of books and any newspaper, newspaper, magazine, review, or bulletin
which appear at regular intervals with fixed prices for subscription and sale and which is not
devoted principally to the publication of paid advertisements.
The sale of books and periodicals is exempt. The sale of school supplies and the commission income is
subject to business tax.
SALE OR LEASE OF REAL PROPERTIES UNDER CERTAIN CONDITIONS
Categories of exempt transactions on real properties
A. Sale of real properties
a. By a person not engaged in the realty business (non-dealer)
b. By a person engaged in the realty business which complies with statutory price ceilings (dealer)
B. Lease of residential dwellings not exceeding P12, 800 a unit per month
Sale of Real Properties
Sale by a non-dealer (casual sale)
Sale of real properties not primarily held for sale to customers or held for lease in the ordinarily course of
business is exempt from business tax. The reason is that the seller is not engaged in business.

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 BUSINESS AND TRANSFER TAXATION 2019
Sale by a realty dealer; developer or lessor
Normally, the sale by a dealer is subject to business tax, except sales of the following residential
properties if the real estate dealer complies with the following price ceilings:
1. Sale of real properties utilized for socialized housing unit:
a. House and lot package – P450,000
b. Residential lots only – P180,000 (RMC35-2014)
(Per HUDCC memorandum Circular No. 1 s.2013, October 16, 2013)
2. Sale of real properties utilized for low-cost housing wherein the price ceiling per unit is P450,000
3. Sale of residential lot valued at P3,000,000 and below
4. Sale of residential dwelling valued at P3,000,000 and below
Lease of residential unit with monthly rental not exceeding P15,000
Residential units – refers to apartments and houses and lots used for residential purposes, and building or
parts or units thereof used as dwelling places such as, dormitories, rooms and bed spaces, except motels,
motel rooms, hotel, and hotel rooms, lodging houses, inns and pension houses.
The term unit shall mean:
1. an apartment unit – in the case of apartment
2. a house – in the case of residential houses
3. per person – in the case of dormitories, boarding houses and beds spaces
4. per room – in the case of rooms for rent
TRANSPORT OF PASSENGERS BY INTERNATIONAL CARRIERS
The receipt from the transport of passengers by international carriers originating from the Philippines
going abroad is now exempt from business tax under RA 10378.
SALE OF COOPERATIVES
With the exception of electric cooperatives, cooperatives of any kinds are exempt from business tax if
they transact business only with members. Cooperative which transacts business with non-members are
subject to business tax on their sales with non-members if their accumulated reserves exceeds
P10,000,000.
EXPORT SALES OF NON-VAT TAXPAYERS
The export sale of non-VAT taxpayers is exempt from percentage tax. under the law however, the export
sale of VAT taxpayers is taxable to the value added tax but at 0% rate.
TRANSACTIONS EXEMPT UNDER INTERNATIONAL AGREEMENTS OR SPECIAL LAWS
There are entities that are granted VAT exemption under special law or international agreements to which
the Philippines is a signatory. These are referred to as “exempt parties”.
INVOICING REQUIREMENTS FOR EXEMPT SALES
With respect to VAT-taxpayers, exempt sales must be specifically designated as such by indicating or pre-
printing the caption ‘EXEMPT’ on the invoice or receipt. The failure to comply with this requirements
shall make the sale subject to business tax. The sale will be subject to VAT if the taxpayer is a VAT-
registered taxpayer and subject to 3% percentage tax if a non-VAT registered taxpayer.
OPTIONAL VAT TREATMENT
Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed
transactions) may opt that the VAT apply to his transactions which would have been exempt. Such option
must be made within 10 days before the beginning of the taxable quarter.

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 BUSINESS AND TRANSFER TAXATION 2019
NOTE ON SALES TO SENIOR CITIZENS AND PERSONS WITH DISABILITY
Senior citizens and persons with disability (PWD) are entitled to a 20% special discounts on their
purchases from certain business establishment such as hotels and similar lodging establishments,
restaurants, recreational centers and other places of culture, leisure and amusements, hospitals, drugstores
and services such as medical, dental, domestic air, sea and land transport fares and funeral or burial
services.
A/M HER V/A ERICT
Symbol Code word
A/M Agricultural or marine food products in original state
H Health or hospital services
E Employment
R Regional Administrative Headquarters (RHQ)

V/A Sale or lease of vessels and aircraft

E Education and related consumptions
R Sale or lease of real properties under certain conditions
I Transport of Passengers by international carriers
C Sales of Cooperatives
T Transactions exempt under treaty or special laws

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