VAT

EXEMPTIONS
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 Transactions Exempt from VAT

1. Sale or importation of agricultural and marine food products in

their original state, livestock and poultry of a kind for human
consumption; and breeding stock and genetic materials;
2. Sale or importation of fertilizers, seeds, seedlings and fingerlings,
fish, prawn, livestock and poultry feeds;
3. Importation of personal and household effects belonging to
residents of the Philippines returning from abroad and non-
resident citizens coming to re-settle in the Philippines; Provided,
that such goods are exempt from customs duties under the Tariff
and Customs Code of the Philippines;

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 Transactions Exempt from VAT

4. Importation of professional instruments and implements, tools of

trade, occupation or employment, wearing apparel, domestic
animals and personal household effects belonging to
a. persons coming to settle in the Philippines; or
b. Filipinos or their families and descendants who are now
residents or citizens of other countries, such parties hereinafter
referred to as overseas Filipinos,
1) In quantities and of the class suitable to the profession, rank
or position of the persons importing said items;
2) For their own use;
3) Not for barter or sale; and
4) Accompanying such persons, or arriving within a reasonable
time
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 Transactions Exempt from VAT

Bureau of Customs may exempt such goods from payment of duties

and taxes subject to:
1. The production of satisfactory evidence that such persons are
actually coming to settle in the Philippines; and
2. That the goods are brought from their former place of abode.
Vehicles, vessels, aircrafts, machineries and other similar goods for use
in manufacture, shall not fall within this classification and shall therefore
be subject to duties, taxes and other charges;

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 Transactions Exempt from VAT

5. Services subject to Percentage Tax under Title V, NIRC as

enumerated below:
a. Sale or lease of goods or properties or the performance of
services of non-VAT-registered persons, the gross annual sales
and/or receipts of which does not exceed the amount of Three
Million Pesos (P3,000,000.00) (Sec.116 of the NIRC);
b. Services rendered by domestic common carriers by land, for
the transport of passengers and keepers of garages (Sec.
117);

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 Transactions Exempt from VAT

c. Services rendered by international air/shipping carriers (Sec. 118);

d. Services rendered by franchise grantees of radio and/or television
broadcasting whose annual gross receipts of the preceding year do
not exceed Ten Million Pesos (P10,000,000.00), and by franchise
grantees of gas and water utilities (Sec. 119);
e. Service rendered for overseas dispatch, message or conversation
originating from the Philippines (Sec. 120);

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 Transactions Exempt from VAT

f. Services rendered by any person, company or corporation (except

purely cooperative companies or associations) doing life insurance
business of any sort in the Philippines (Sec. 123);
g. Services rendered by fire, marine or miscellaneous insurance agents
of foreign insurance companies (Sec. 124);
h. Services of proprietors, lessees or operators of cockpits, cabarets,
night or day clubs, boxing exhibitions, professional basketball
games, Jai-Alai and race tracks (Sec. 125); and

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 Transactions Exempt from VAT

i. Receipts on sale, barter or exchange of shares of stock listed and

traded through the local stock exchange (Sec. 127).

6. Services by agricultural contract growers and milling for others of

palay into rice, corn into grits and sugar cane into raw sugar;
7. Medical, dental, hospital and veterinary services, except those
rendered by professionals;

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 Transactions Exempt from VAT

8. Educational services by private institutions, duly accredited by the

Department of Education (DepEd) and the Commission on Higher
Education (CHED) and the Technical Education and Skills
Development Authority (TESDA) and those rendered by government
educational institutions;
9. Services rendered by individuals pursuant to an employer-employee
relationship;
10. Services rendered by Regional or Area Headquarter established in the
Philippines by Multinational Corporations which act as supervisory,
communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines;
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 Transactions Exempt from VAT

11. Transactions which are exempt under International Agreements to which

the Philippines is a signatory or under special laws;
12. Sales by agricultural cooperatives duly registered and in good standing
with the Cooperative Development Authority (CDA) to their members;
13. Gross receipts from lending activities by credit or multi-purpose
cooperative duly registered and in good standing with the CDA;
14. Sale by non-agricultural, non-electric and non-credit cooperatives:
provided that the share capital contribution of each member does not
exceed Fifteen Thousand Pesos (P15,000) and regardless of the
aggregate capital and net surplus ratable distributed among the members;
15. Export sales by a non-VAT registered person;

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 Transactions Exempt from VAT

16. The following sales of real properties are exempt from VAT:
a. Sale of real properties not primarily held for sale or lease in the ordinary course of
trade or business.
However, even if the real property is not primarily held for sale to customers or
held for lease in the ordinary course of trade or business but the same is used
in the trade or business of the seller, the sale shall therefore be subject to VAT
being a transaction incidental to the taxpayer’s main business (RR 4-2007).

b. Sale of real properties utilized for low-cost housing wherein the price ceiling per
unit is P750,000.00 as set by the Housing and Urban Development Coordinating
Council (HUDCC) and other laws. (effective January 1, 2021, this was removed
by RR No. 4-2021, as amended by RR No. 8-2021)

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 Transactions Exempt from VAT

c. Sale of house and lot utilized for socialized housing wherein the price
ceiling per unit is P450,000.00 or as may from time to time be
determined by the HUDCC and the NEDA and other related laws.
d. Sale of residential lot valued at One Million Five Hundred Thousand
Pesos (P1,500,000.00) and below, or house & lot and other residential
dwellings valued at Two Million Five Hundred Thousand Pesos
(P2,500,000.00) and below, as adjusted in 2011 using the 2010
Consumer Price Index values (increased to P3,199,200.00 as a result
of the adjustment made in 2011 using the Consumer Price Index Values
per RR No. 16-2011 and made effective January 1, 2012, per RR No. 3-
2012; further, effective January 1, 2021, sale of residential lot is subject
to VAT per RR No. 4-2021)

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 Transactions Exempt from VAT

17. Lease of residential unit with a monthly rental per unit not exceeding
P15,000.00;
Illustration 1:
A lessor rents his 15 residential units for P14,500 per month. During the
taxable year, his accumulated gross receipts amounted to P2,610,000. He is
not subject to VAT since the monthly rent per unit does not exceed P15,000.
He is also not subject to 3% Percentage Tax.
Using the same example, assuming he has 20 residential units with the same
monthly rent per unit and his accumulated gross receipts during the taxable
year amounted to P3,480,000, he is still not subject to VAT even if the
accumulated earnings exceeded P3,000,000 since the monthly rent per unit
does not exceed P15,000. He is also not subject to 3% Percentage Tax.\

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 Transactions Exempt from VAT

Illustration 2:
A lessor rents his 15 residential units for P15,500 per month. During the
taxable year, his accumulated gross receipts amounted to P2,790,000.
He is not subject to VAT since his accumulated gross receipts did not
exceed P3,000,000. He is, however, subject to 3% Percentage Tax
since the monthly rent per unit is more than P15,000.00.
Using the same example, assuming he has 20 residential units with the
same monthly rent per unit and his accumulated gross receipts during
the taxable year amounted to P3,720,000, he is already subject to VAT
since the accumulated earnings exceeded P3,000,000 and the monthly
rent per unit is more than P15,000.00.

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 Transactions Exempt from VAT

Illustration 3:
A lessor rents his 2 commercial and 10 residential units for monthly rent
of P60,000 and P15,000 per unit, respectively. During the taxable year,
his accumulated gross receipts amounted to P3,240,000 (P1,440,000
from commercial units and P1,800,000 from residential units). The
P1,440,000 from commercial units is not subject to VAT since it did not
exceed P3,000,000. It is, however, subject to 3% Percentage Tax. On
the other hand, the P1,800,000 accumulated receipts from the residential
units are not subject to Percentage Tax and exempt from VAT since the
monthly rent is not more than P15,000.

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 Transactions Exempt from VAT

Using the same example, assuming the lessor has 5 commercial units
and his accumulated gross receipts during the taxable year amounted
to P5,400,000 (P3,600,000 from commercial units and P1,800,000
from residential units), he is subject to VAT with respect to P3,600,000
since it exceeded P3,000,000. The P1,800,000 accumulated receipts
from residential units are not subject to Percentage Tax and exempt
from VAT since the monthly rent is not more than P15,000.

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 Transactions Exempt from VAT

Illustration 4:
A lessor rents his 5 commercial and 10 residential units for monthly
rent of P60,000 and P15,500 per unit, respectively. During the taxable
year, his accumulated gross receipts amounting to P5,460,0000
(P3,600,000 from commercial units and P1,860,000 from residential
units) shall be subject to VAT since it exceeded the P3,000,000
threshold and the monthly rent of residential units is more than
P15,000.

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 Transactions Exempt from VAT

18. Sale, importation, printing or publication of books and any

newspaper, magazine, review, or bulletin, or any such
educational reading material covered by the UNESCO
Agreement on importation of educational, scientific and cultural
materials (including digital/electronic format) not devoted
principally to the publication of paid advertisements and that
materials enumerated are compliant with the requirements set
fort by the National Book Development Board (as amended by
RR No. 4-2021);

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 Transactions Exempt from VAT

18. Transport of passengers by international carriers;

19. Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts for
domestic and international transport operations;
20. Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations; Provided, that
the said fuel, goods and supplies shall be used for international
shipping or air transport operations;

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 Transactions Exempt from VAT

21. Services of banks, non-bank financial intermediaries performing

quasi-banking functions, and other non-bank financial
intermediaries subject to percentage tax under Sections 121 and
122 of the NIRC, such as money changers and pawnshops;
22. Sale or lease of goods and services to senior citizens and persons
with disabilities, as provided 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;

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 Transactions Exempt from VAT

24. Transfer of Property pursuant to Section 40(C)(2) of the Tax Code,

as amended;
25. Association dues, membership fees, and other assessments and
charges collected on a purely reimbursement basis by homeowners’
associations and condominium corporations established under
Republic Act No. 9904 (Magna Carta for Homeowners and
Homeowners’ Association) and Republic Act No. 4726 (The
Condominium Act), respectively;
26. Sale of gold to the Bangko Sentral ng Pilipinas;

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 Transactions Exempt from VAT

27. Sale or importation of prescription drugs and medicines for:

a. Diabetes, high cholesterol, and hypertension beginning January 1,
2019; and
b. Cancer, mental illness, tuberculosis, and kidney diseases beginning
January 1, 2021 (RR No. 18-2020, as amended by RR No. 4-2021,
where the original date of 2023 was changed to 2021).
The exemption from VAT shall only apply to sale or importation of the
manufacturers, distributors, wholesalers and retailer of drugs and
medicines included in the list of approved drugs and medicines issued
by the Department of Health (DOH).

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 Transactions Exempt from VAT

27. Sale or importation of the following beginning January 1, 2021 to December

31, 2023 (this was included as an exemption per RR No. 4-2021):
a. Capital equipment, its spare parts and raw materials, necessary for the
production of personal protective equipment (PPE) components such as
coveralls, gown, surgical cap, surgical mask, n-95 mask, scrub suits,
googles and face shield, double or surgical gloves, dedicated shoes and
shoes covers, for COVID-19 prevention;
b. All drugs, vaccines and medical devices specifically prescribed and directly
used for the treatment of COVID-19 and;
c. Drugs for the treatment of COVID-19 approved by the FDA for use in
clinical trials, including raw materials directly necessary for the production of
such drugs

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 Transactions Exempt from VAT

Requirements:
1. DTI shall certify that such equipment, spare parts or raw materials for
importation are not locally available or insufficient in quantity, or not in
accordance with the quality or specification required
2. For item (b) within sixty days from effectivity of the CREATE and every
three months thereafter, DOH shall issue a list of prescription drugs
and medical devices covered by this provision (list covered under this
provision was released in RMC No. 81-2021 and clarified under RMC
No. 99-2021).

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 Transactions Exempt from VAT
Requirements:
1. For item (a) and (c), the supplier/s or importer shall submit for the
purpose of availing exemption the following:
i. Certified true copy of License to Operate issued to the
manufacturer-buyer by the DOH-FDA authorizing the manufacture
of medical grade PPE components and drugs for the treatment of
COVID-19
ii. Sworn Declaration from the manufacturer-buyer that the items
shall be used for the manufacture of the PPE components and
drugs for the treatment of COVID-19
Exemption shall be subject to post audit by the BIR or BOC
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 Transactions Exempt from VAT

28. 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 do not exceed the amount of Three
Million Pesos (P3,000,000.00) (as amended by RR No. 4-2021).
Gross annual sales shall comprise of the business’ total revenues from
sales of its products, which are either goods or services, including non-
refundable advance deposits/payments for services, net of discounts,
sales returns and allowances, covering the calendar or fiscal year.
Sales incidental to the registered operations of the business shall also
be included.

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 Transactions Exempt from VAT

Note:

- Cooperatives and;

- Self-employed individuals and professionals availing of the 8% tax on

gross sales and/or 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 percent (12%) VAT and three
percent (3%) percentage tax.

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 Effects on Exempt Transaction

An exemption means that the sale of goods, properties, services,

use or lease of properties is NOT subject to VAT (output tax) and
the seller is not allowed any tax credit (input tax) previously paid.
Thus, 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.

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