VAT FINAL.pptx

VALUE
ADDED
TAX
TAXATION LAW 2
3-S
ATTY. NICASIO
CABAINERO

VALUE
ADDED TAX
A tax on consumption
levied on the sale, barter,
exchange or lease of
goods or properties and
services in the
Philippines and on
importation of goods
into the Philippines.

CHARACTERISTI
CS
1. It is an indirect tax.
2. It is a tax imposed on
value added to goods or
services.
3. It is a transparent form of
sales tax.
4. It is a broad-based tax.
5. It is collected through the
tax credit method/invoice
method.
6. It adopts the tax-inclusive
method.
7. It follows the Destination

1. Any person who, in
the course of trade or
business:
A. Sells, barters,
exchanges, or
leases goods or
properties
B. Renders services

2. Any person who imports goods

“IN THE
COURSE OF
TRADE OR
BUSINESS”
ELEMENTS:
> It must be regularly
conducted
> Undertaken in pursuit of a
commercial or economic
> Regular conduct or pursuit
of a commercial or an economic
activity.

EXCEPTIONS TO THE RULE OF
REGULARITY
1. Importation
of goods
2. Services rendered
in the Philippines
by a non-resident
foreign person
3. Businesses where
gross sales or receipt
do not exceed
P100,000.00 during any
12-month period

PERSONS REQUIRED TO
REGISTER FOR VAT
1. Any person who, in the
course of trade or
business:
A. Sells, barters, or
exchanges goods or
properties
B. Engages in the sale
or exchange of services
CONDITIONS:
1. Gross sales for past 12
months exceeded php
1,919,500.00
2. There are reasonable
grounds to believe that
his gross sales for the
next 12 months shall
exceed php 1,919,500.00
2. Any person who is
required but failed to do
so.

VAT-EXEMPT
PERSONS
1. Persons not engaged in undertaking VAT-taxable
transactions
A. Those whose annual gross sales do not exceed Php
1,919,500.00
B. Non-stock/non-profit organizations
2. Subsistence livelihood activities
3. Persons exempt under special laws
4. VAT-exempt under treaty

SPECIAL VAT PERSONS
1. Husband and
Wife
2. Joint Venture
3. General
Professional
Partnership (GPP)

SPECIAL VAT PERSONS
5. Non-
stock/non-
profit
association
6. Real Estate
Dealer
7. Importers

VALUE ADDED TAX IS
IMPOSED ON THE
FOLLOWING:
Sale of
Goods or
Propertie
s
Sale of
Real
Propertie
s
Importation
of Goods
Sale of Service
and Use or
Lease of
Property

VAT rate for THE GROSS SELLING
PRICE OR GROSS VALUE OF GOODS
OR PROPERTIES SOLD, BARTERED, OR
EXCHANGED, SUCH TAX TO BE PAID
BY THE SELLER OR TRANSFEROR.

GOODS
- All tangible and intangible objects, whether real or
personal, which are capable of pecuniary estimation.
- REAL PROPERTIES such as lands and buildings, held
primarily for sale to customers or held for lease in the
ordinary course of business.
- INTANGIBLE PROPERTIES (PIMS)
> right or privilege to use patents, copyrights, and
trademarks
> right or privilege to use any industrial, commercial, or
scientific equipment
> right or privilege to use motion pictures, films

GOODS
- Any movable, tangible object, which is
appropriable or transferable, and having intrinsic
value. It connotes any commodity produced and
subsequently purchased to satisfy the current
wants and perceived needs of the buyer. (Rev.
Regulation No. 5-87, September 1, 1987)

REQUISITES (SNOP)
an actual or deemed SALE of goods or
properties for valuable consideration
Undertaken in the ORDINARY COURSE of
business
for the USE and CONSUMPTION in the
PHILIPPINES
NOT EXEMPT from VAT under the Tax
Code.

OF GOODS AND
PROPERTIES
- One of the contracting parties obligates himself to
transfer the ownership of and to deliver a
determinate thing, and the other to pay therefore a
price certain in money or its equivalent. (Art. 1458,
NCC)p
- can be ACTUAL, DEEMED, or
EXPORT sale.

CONSUMED OR
FOR
CONSUMPTION
“VAT is a tax in
consumption of goods in
the Philippines.”
Domestic sale and importation of goods:
12% VAT
Export sales subject to consumption outside
the Philippines is subject to 0% VAT
If made within PEZA: zero-rated

GROSS SELLING
PRICE
 Total amount of money or its
equivalent which the purchaser
pays or is obligated to pay to the
seller in consideration of the
sale, barter or exchange of the
goods or properties, EXCLUDING
VALUE-ADDED TAX.
 The EXCISE TAX, if any, shall
form part of the gross selling
price.

GROSS SELLING
PRICE
What the buyer
pays to the seller
Vat is shifted to the buyer

SALES DISCOUNTS
-Determined and granted at the time of the
sale as expressly indicated in the invoice.
-Discounts conditioned upon the subsequent
happening of an event or fulfilment of certain
conditions shall not be allowed as deductions

SALES RETURNS AND ALLOWANCES
-granted where proper credit or refund was made
during the month or quarter to the buyer for sales
previously recorded as taxable
-arises when customers return all or a portion of the
goods that they purchased due to wrong
specifications, poor quality of the goods, or if

12%
VAT rate for the GROSS
SELLING PRICE or GROSS
VALUE of the properties
sold, bartered, or
exchanged.

GROSS SELLING
PRICE
whichever is the highest
of the:
 Consideration in the
deed of sale;
 Zonal value, per CIR;
and
 Fair market value per
real property
declaration with the
provincial or city

THE FOLLOWING REAL
PROPETIES ARE
SUBJECT TO VAT:
 Held for sale to buyers
in the ordinary course
of business
 Those held for lease in
the ordinary course of
business
 Those used in trade or
business of the seller

REQUISITES FOR SALE OR
EXCHANGE OF REAL PROPERTY
(WODENT)
The real property is located WITHIN the
Philippines.
The real property is an ORDINARY
asset.
The seller or transferor is a real estate
Dealer.

REQUISITES
The seller EXECUTES a deal of sale, barter,
exchange, assignment, transfer, or
conveyance , or merely contract to sell the
property
The sake is NOT exempt from VAT under
the Tax Code or other laws.
The THRESHOLD amount set by law should
be met.

REAL ESTATE
DEALER
- Any person engaged in
the business of buying,
developing, selling,
exchanging real property
as principal and holding
himself out as a full or
part-time dealer of real
estate.

THRESHOLD: SALE OF REAL
PROPERTY COVERED BY VAT
1. RESIDENTIAL LOT with gross
selling price EXCEEDING
P1,919,500.
SALE BY A REAL ESTATE DEALER OF A:
2. RESIDENTIAL HOUSE AND LOT
AND OTHER RESIDENTIAL
DWELLINGS WITH GSP
EXCEEDING P3,199,200.
3. SALE, TRANSFER, OR DISPOSAL
WITHIN A 12-MONTH PERIOD OF
TWO OR MORE ADJACENT
RESIDENTIAL LOTS, HOUSE AND
LOTS, AND OTHER RESIDENTIAL
DWELLINGS

MODES OF SALE:
INSTALLMENT PLAN DEFERRED PLAN
AS TO INITIAL PAYMENTS
Initial payments do not exceed
25% of the gross selling price.
Initial payments exceed 25% of
the gross selling price
AS TO TAX LIABILITY
Seller shall be subject to output
VAT on instalment payments
received.
Transaction will be treated as a
cash sale which makes the entire
selling price taxable in the month
of sale.
AS TO SUBSEQUENT PAYMENTS
Payments that are subsequent to
the initial payments shall be
subject to output VAT.
Subsequent payments are not
subject to output VAT.

VAT
On IMPORTATION OF
GOODS AND SALE OF
SERVICES AND USE OR
LEASE OF PROPERTIES

In general…
There shall be levied, assessed and
collected on every importation of goods
a value- added tax equivalent to 12%
based on the total value used by the
Bureau of Customs in determining tariff
and customs duties plus customs duties,
excise taxes if any and other charges,
such tax to be paid by the importer prior
to the release of such goods from
customs duty: Provided, That where the
customs duties are determined on the
basis of quantity or volume of the
goods, the VAT shall be based on the
landed cost plus excise taxes, if any
(Section 32, R.A. 10963).

VAT ON IMPORTATION
OF GOODS
• In the case of tax-free importation of goods 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 entities, the purchasers, transferees or
recipients shall be considered the importers thereof, who shall be
liable for any internal revenue tax on such importation. The tax due
on such importation shall constitute a lien on the goods superior to
all charges or liens on the goods, irrespective of the possessor
thereof. (Section 32 (B) R.A. 10963)

An alien employee of Asian
Development Bank (ADB)
who is retiring soon has
offered to sell his car to you,
which he imported tax - free
for his personal use. The
privilege of exemption from
tax is granted to qualified
personal use under the ADP
Charter, which is recognized
by the tax authorities. If you
decide to purchase the car, is
BAR QUESTION
(2005)

Yes.
The sale is subject to tax. In case
of tax free importation of goods
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
entities, the purchasers,
transferees or recipients shall be
considered the importer thereof,
who shall be liable for any
internaL revenue tax on such
ANSWER

ON SALE OR
EXCHANGE OF
SERVICES

WHAT DO YOU MEAN BY
SALE OR EXCHANGE
OF SERVICES?
Under Sec. 33 of R.A. 10963, “sale or
exchange of services” broadly embraces the
performance of all kinds of services in the
Philippines for others for a fee,
remuneration or consideration, by a
person. regardless of whether the
performance thereof calls for the exercise
or use of the physical or mental faculties.

SALES OR SERVICES INCLUDE:
Construction and service
contractors
Stock of real estate, commercial,
customs and immigration
brokers

Lessors of property whether
real or personal
Lessors or distributors of
cinematographic films

Persons engaged in milling,
processing, manufacturing, or
repacking of food for others
Proprietors, operators or
keepers of hotels, motels, rest
houses pension houses, inns,
and resorts

Proprietors, operators of
restaurants, refreshment parlours,
cafes and other eating places
including clubs and caterers
Dealers in securities
Lending investors

Transportation contractors Sales of electricity by generation
companies, transmission by any
entity and distribution companies
including electric cooperatives

Insurance companies Other services which require the
exercise or use of mental or
physical faculties

CATEGORIES OF SERVICES
PROFESSIONAL/TECHNICAL CONSULTANCY
TRANSFER OF TECHNOLOGY
LEASE OR USE OF TANGIBLE PROPERTY
LEASE OR USE OF INTANGIBLE PROPERTY

REQUISITES FOR TAXABILITY
OF SERVICES

SERVICE IN THE
COURSE OF TRADE
OR BUSINESS
Lease of
properties owned
by non residents
“It is not absolutely necessary
that the person who entered
into a contract to perform
service for another in the course
of trade or business should
personally render the service.
The service may be performed
by another as a subcontractor.”
(Philippine Healthcare Providers
Corp. vs. Commissioner)
A non-resident person who
derives rental income from
the lease of tangible property
physically situated in the
Philippines or receives
royalties for granting the
right to use in the Philippines
the intangible property (e.g.,
copyright or patent)
belonging to him is a taxable

the total amount of money or its equivalent
representing the contract price, compensation,
service fee, rental or royalty, including the amount
charged for materials supplied with the services and
deposits and advanced payments actually or
constructively received during the taxable quarter
for the services performed or to be performed for
GROSS
RECEIPTS

ACTUAL OR
CONSTRUCTIVE
RECEIPT
Actual or constructive receipt
of a contract price,
compensation or
remuneration or fee makes
the seller of services liable to
VAT, even if no services has
yet performed by him.

CONSTRUCTIVE
RECEIPT
occurs when the money consideration or
its equivalent is placed under the control
of the person who rendered the service
without restrictions by the payor.
EXAMPLES: Deposit in banks which are
made available to the seller of services
without restrictions; issuance by the
debtor of the notice to offset any debt or
obligation and acceptance thereof by the
seller as payment for the services
rendered; and transfer of the amounts
retained by the contractee on account of

> Theatres and movie houses are not included in the
taxable services in the VAT law.
> However, they were added among the taxable
sellers of services in the regulation on account of the
phrase “similar services” in the definition of the term
“sale or exchange of services” in Section 108 of the
Tax Code.
MOVIE AND CINEMA HOUSES

SECTION 107 , Republic Act 8242, as
amended up to R.A.No. 10653
Section 32, Republic Act No.
10963
(TRAIN LAW)
There san be levied, assessed and
collected on every importation of goods a
value- added tax equivalent to 10% based
on the total value used by the Bureau of
Customs in determining tariff and
customs duties plus customs duties,
excise taxes if any and other charges,
such tax to be paid by the importer prior
to the release of such goods from
customs duty: Provided, That where the
customs duties are determined on the
basis of quantity or volume of the goods,
the VAT shall be based on the landed cost
plus excise taxes, if any.
There san be levied, assessed and
collected on every importation of
goods a value- added tax
equivalent to 12% based on the
total value used by the Bureau of
Customs in determining tariff and
customs duties plus customs
duties, excise taxes if any and other
charges, such tax to be paid by the
importer prior to the release of
such goods from customs duty:
Provided, That where the customs
duties are determined on the basis
of quantity or volume of the
goods, the VAT shall be based on
the landed cost plus excise taxes, if
any.
SECTION 108 , Republic Act 8242, as
amended up to R.A.No. 10653
Section 33, Republic Act No.
10963
(TRAIN LAW)
RATE
and
BASE
of
TAX

The law enumerates four instances
when there can be deemed sales. In
other words, there is no actual sale.
Nevertheless, the law deems that
there is a taxable sale to attain the
objective set forth therein. These
specific instances are explained
found in the following slides:

A. transfer, use or
consumption not in the course
of business of goods or
properties originally intended
for sale or for the use in the
course of business

The Deemed seller is also the
deemed buyer and no valuable
consideration is paid.
EXAMPLE:
If a grocery owner withdraws
goods for personal or non-
personal use from his inventory of
goods for sale, he derives a tax
advantage from the input tax
which he has already credited in
the month of purchase against the
output tax.
Since the withdrawal or transfer
of goods results in the use or
consumption of such goods by
a person (the seller himself)
who effectively is the final
consumer, such withdrawal or
transfer is deemed a sale

B inherited from her father
a 300 sq. m. lot which is
valued at P5,000,000.00.
The lot used to be the
place of her father’s car
wash business until his
death. Now, the lot serves
as an ancestral home to B’s
family. BIR asserts that the
property is subject to VAT.
Is the BIR correct?
QUESTION

Yes. Under the National
Internal Revenue Code, the
transfer, use or consumption
not in the course of business
of goods or properties
originally intended for sale
or for the use in the course
of business is deemed to be
sale.
As such, being a product of a
transaction deemed sale,
property in question is
subject to VAT (Sec. 106
ANSWER

B. distribution or transfer of
property to stockholders,
investors or creditors

The law contemplates that a
domestic corporation declares
property dividend to stockholders
or pays property to investors.
The property dividend could be
paid in the form of real property
owned by the corporation or
investment in shares of stocks of
another corporation.
It is assumed in this case, that the
corporation paying the dividend is
either a real estate dealer or a
dealer of securities.
The reason for this assumption is
that the sale, barter or exchange of
real property or share od stocks is
taxable only when made by a real
estate dealer under Section 106 of
the Tax Code, or by a dealer in

In general, consignment of goods by the
consignor-owner is not a taxable
transaction, considering that there is no
transfer of ownership over the goods
delivered to the consignee.

The transaction becomes
subject to value added tax only
when such consigned goods
are not sold by the consignee
nor returned by him to the
consignor-owner within sixty
(60) days from the date of
consignment.
If actual sale takes place at any time within the
sixty-day period, the consignor-owner must issue a
CAT sales invoice to the buyer who would be the
consignee or final consumer, depending upon the
contract of consignment.

A VAT-registered taxpayer who ceases or retires from business,
including an unregistered joint venture undertaking
construction activity, must pay output tax on the gross value of
his inventory of materials, goods and supplies existing ay the
time of cessation of or retirement from business.
Trade receivables existing at the time of cessation or retirement
from business of the taxpayer must necessarily be excluded from
the deemed sales and be exempt from VAT.

1. Change of
ownership of a
business
2. Dissolution of a
partnership and creation of
a new partnership which
takes over the business.
(Sec 4. 106-7 Rev. Regs. No. 16-05, September 1, 20

The VAT provided for in Sec.
106 (sale of goods or
properties) shall apply to
goods or properties originally
intended for sales or use in
business and capital goods
which are of existing as of
occurrence of the following:

1. Change of business activity from VAT-
taxable status to VAT-exempt status.

2. Approval of a request for cancellation of registration due to reversion to
exempt status.
3. Approval of a request for cancellation or registration due to a desire to
revert to exempt status after the lapse of three (3) consecutive years from
the time of registration by a person who voluntarily registered despite
being exempt under Section 109(2) of the Tax Code
4. Approval of a request for cancellation of registration one who
commenced business with the expectation of gross sales or receipts
exceeding P1,919,500 but who failed to exceed this amount during the first
twelve months of operation.

ZERO-RATED
AND
EFFECTIVELY
ZERO-RATED
SALE
Sec. 106 (A)(2) of the NIRC as amended by
RA 10963

A zero-rated sale of goods or
properties (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 purchases of goods,
properties or services related to such
zero-rated sale, shall be available as
tax credit or refund.

Automatically 0% Effectively 0%
As to Source Actual export sale of goods
goods and supply of services
services
Local sale of goods or supply
supply of services by a VAT-
VAT-registered person to
persons or entities who were
were granted indirect tax
exemption under special laws
laws or international
agreements to which the
Philippines is a signatory.
As to Rate Tax rate is set a 0% In effect exempted
As to effect on buyer Results in no tax chargeable against buyer
Automatically zero-rated sale vs.
Effectively zero-rated sale
transactions

ZERO
RATED
SALES OF
GOODS OR
PROPERTIE

NIRC
Sec. 106 of the NIRC
A. The term “EXPORT SALES” means:
1. The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of
any shipping arrangement, and paid for in
acceptable foreign currency or its equivalent in
goods or services, and accounted for in
accordance with the rules of the BSP;
2. Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in
manufacturing, processing, packaging or
repackaging and paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the BSP;
3. Sale of raw materials or packaging materials to
TRAIN LAW
A. The term “EXPORT SALES” means:
1. The sale and actual shipment of goods
from the Philippines to a foreign country,
irrespective of any shipping arrangement,
paid for in acceptable foreign currency or its
equivalent in goods or services, and
accounted for in accordance with the rules
and regulations of the Bangko Sentral ng
Pilipinas (BSP).
2. Sale and delivery of goods to:
• Registered enterprises within a separate
customs territory
• Registered enterprises within enterprise
zones
3. Sale of raw materials or packaging
materials to a nonresident buyer for delivery
to a resident local export-oriented enterprise

NIRC
The term “EXPORT SALES” means:
5. Those considered export sales under Executive
Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws;
6. The sale of goods, supplies, equipment and fuel
to persons engaged in international shipping or
international air-transport operations;
b. Foreign currency denominated sale – The phrase
“foreign currency denominated sale” 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, paid for in acceptable currency and
accounted for in accordance with the rules and
regulations of the BSP.
c. Sales to persons or entities whose exemption
TRAIN LAW
materials to export-oriented enterprise
whose export sales exceed seventy percent
(70%) of total annual production;
5. Those considered export sales under
Executive Order No. 226, otherwise known
as the Omnibus Investment Code of 1987,
and other special laws; and
6. The sale of goods, supplies, equipment
and fuel to persons engaged in international
shipping or international air-transport;
provided that the goods, supplies,
equipment and fuel have been sold and
used for international shipping and air-
transport operations;
+ Additional provision
b. Sales to persons or entities whose

P
1. The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement, paid for in acceptable foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
2. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in manufacturing, processing, packaging or repackaging and paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the
BSP;
3. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;
4. Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 198, and other special laws; and
5. The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air-transport; provided that the goods, supplies, equipment and fuel have been sold and
used for international shipping and air-transport operations;
Additional provision:
Items 2, 3, and 4 shall be subject to 12% VAT and no longer be considered export sales subject to 0%
VAT upon the satisfaction of the following conditions: • There is a successful establishment and
implementation of an enhanced vat refund system that grants refunds of creditable input tax within 90
Zero-rated sales of goods or
properties
(under the NIRC as amended by the TRAIN)

1.Sale and delivery of goods to:
• Registered enterprises within a separate customs territory
• Registered enterprises within enterprise zones
The above provision was vetoed by President Duterte
because this go against the principle of limiting the VAT
zero-rating to direct exporters.
PROVISION OF
TRAIN LAW

RATIONALE:
The above provisions go against the principle of limiting the VAT zero-
rating to direct exporters. The proliferation of separate customs
territories, which include buildings, creates inequitable and
significantly reduces the revenues that could be better used for the
poor.
As to the tourism enterprises, the TIEZA law only allows for duty and
tax free importation of capital equipment, transportation equipment
and other goods. Thus, this provision (VETOED) actually grants a new
incentive to suppliers of registered tourism enterprises. At any rate,
PROVISION OF
TRAIN LAW

CROSS BORDER
DOCTRINE
DESTINATION PRINCIPLE
UNDER THE VAT SYSTEM.
As a general rule, the VAT
system uses the
destination principle as a
basis for the jurisdictional
reach of the tax. Goods
and services are taxed only
in the country where they
are consumed. Thus,
exports are zero-rated,
while imports are taxed.

CROSS BORDER
DOCTRINE
EXCEPTION TO THE
DESTINATION
PRINCIPLE.
The law clearly provides for
an exception to the
destination principle; that
is, for a zero percent VAT
rate for services that are
performed in the
Philippines, "paid for in
acceptable foreign

CROSS BORDER
DOCTRINE
RATIONALE FOR ZERO-RATING OF
EXPORTS
The Philippine VAT system adheres to the
Cross Border Doctrine, according to
which, no VAT shall be imposed to form
part of the cost of goods destined for
consumption outside of the territorial
border of the taxing authority.
[Commissioner of Internal Revenue v.
Toshiba Information Equipment (Phils.),
Inc., G. R.. No. 150154, August 9, 2005]
The “Cross Border Doctrine” is also
known as the destination principle.
Hence, actual or constructive export of
goods and services from the Philippines
to a foreign country must be zero-rated

ZERO-RATED
SALES OF
GOODS OR
PROPERTIES

ZERO-RATED SALES OF GOODS
OR PROPERTIES
1. The sale and actual shipment
of goods from the Philippines to
a foreign country, irrespective of
any shipping arrangement, and
paid for in acceptable foreign
currency or its equivalent in
goods or services, and
accounted for in accordance
with the rules of the BSP;

ZERO-RATED SALES OF GOODS OR
PROPERTIES
materials to a nonresident buyer for
delivery to a resident local export-
oriented enterprise to be used in
manufacturing, processing, packaging
or repackaging and paid for in
acceptable foreign currency and
accounted for in accordance with the
rules and regulations of the BSP;
> Export sales of goods or properties
(ARRCI) – Sales outside the Philippines are
subject to 0% rate if made by a VAT-
registered person.

ZERO-RATED SALES OF GOODS OR
PROPERTIES
> Sales to ecozone, such as PEZA,
considered export-sale. Notably, while an
ecozone is geographically within the
Philippines, it is deemed a separate customs
territory and is regarded in law as foreign
soil. Sales by suppliers from outside the
borders of the ecozone to this separate
customs territory are deemed as exports
and treated as export sales. These sales are
zero-rated or subject to a tax rate of zero
percent. (Commissioner of Internal Revenue
v. Sekisui Jushi Philippines, Inc., G. R. No.
149671, July 21, 2006 citing various

3. Sale of raw materials or
packaging materials to export-
oriented enterprise whose
export sales exceed seventy
percent (70%) of total annual
production
CONDITIONS:
A. The seller shall file an
application for zero-rating for
each and every separate buyer.
The application should be
accompanied with a favorable
recommendation from the
Board of Investments.
B. The raw materials sold are to
be used exclusively by the
buyer in the manufacture,
processing or repacking of his
registered export product;

4. Those considered export sales under Executive
Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws
ACTUAL EXPORTS
a. Philippine port FOB value based on
commercial documents of export
products exported directly by a
registered export producer
b. The net selling price of export
products sold by a registered export
producer to another export producer,
provided that the latter actually
exports the said export products
c. The net selling price of export
products sold by a registered export
producer to an export trader,
provided that the latter actually
CONSTRUCTIVE EXPORTS
a. Sales to bonded manufacturing
warehouses of export-oriented
manufacturers;
b. Sales to export processing zones (RA Nos.
7916, 7903, 7922);
c. Sales to enterprises duly registered an
accredited to the SBMA (RA7227);
d. Sales to registered export traders
operating bonded trading warehouses
supplying raw materials in the
manufacture of export products;
e. Sales to diplomatic missions and other
agencies and/or instrumentalities granted
tax immunities, of locally manufactured,
assembled or repacked products;

5. The sale of goods, supplies,
equipment and fuel to persons engaged
in international shipping or international
air-transport; provided that the goods,
supplies, equipment and fuel have been
sold and used for international shipping
and air-transport operations;
limited to goods, supplies, equipment and
fuel that shall be used in the transport of
goods and passengers from a port in the
Philippines directly to a foreign port, or
vice versa, without docking or stopping at
any other port in the Philippines unless the
docking or stopping at any other
Philippine port is for the purpose of
unloading passengers and/or cargoes that
originated from abroad, or to load
passengers and/or cargoes bound for
abroad; Provided, further, that if any

DELETED PROVIS
The following shall no longer be subject
1) Sale of
gold to
BSP
2.) Foreign-
currency
denominated
sales

A
ADDITIONAL PROVISIONS
Additional provision: Items 2, 3, and 4 shall be subject to
12% VAT and no longer be considered export sales subject
subject to 0% VAT upon the satisfaction of the following
following conditions:
There is a successful establishment and
implementation of an enhanced vat refund system that
that grants refunds of creditable input tax within 90
within 90 days from the filing of the vat refund application
application with the Bureau
All pending VAT refund claims as of December 31,
31, 2017 shall be fully paid in cash by December 31,
A

NIRC
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 in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
2. Services other than those mentioned in the
preceding paragraph rendered to a person engaged
in business conducted outside the Philippines or to
a nonresident person not engaged in business who
is outside the Philippines when the services are
performed, the consideration for which is paid for
in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
TRAIN LAW
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 in acceptable foreign currency
and accounted for in accordance with the
rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
2. Services other than those mentioned in
the preceding paragraph rendered to a
person engaged in business conducted
outside the Philippines or to a nonresident
person not engaged in business who is
outside the Philippines when the services are
performed, the consideration for which is
paid for in acceptable foreign currency and
accounted for in accordance with the rules
and regulations of the Bangko Sentral ng
Pilipinas (BSP);

NIRC
4. Services rendered to persons engaged in
international shipping or
international air transport operations, including
leases of property for use thereof;
5. Services performed by subcontractors and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose
export sales exceed seventy percent (70%) of total
annual production are no longer entitled to VAT
zero-rating.
6. Transport of passengers and cargo by domestic
air or sea vessels from the Philippines to a foreign
country;
TRAIN LAW
4. Services rendered to persons engaged in
international shipping or international air
transport operations, including leases of
property for use thereof; provided, that
these services shall be exclusively for
international shipping or air transport
operations;
5. Services performed by subcontractors
and/or contractors in processing, converting,
or manufacturing goods for an enterprise
whose export sales exceed seventy percent
(70%) of total annual production are no
longer entitled to VAT zero rating.
6. Transport of passengers and cargo by
domestic air or sea vessels from the
Philippines to a foreign country;
7. Sale of power or fuel generated through
renewable
sourced of energy such as but not limited to

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 in acceptable foreign currency and
rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
2. Services other than those mentioned
in the preceding paragraph, rendered to
a person engaged in business conducted
outside the Philippines or to a non-
resident person not engaged in business
who is outside the Philippines when the
services are performed, the
consideration for which is paid for in
acceptable foreign currency and
rules and regulations of the Bangko

The VAT system generally follows the
destination principle (exports are zero-
rated whereas imports are taxed.)
However, an exception to this principle
is the 0% VAT on services enumerated
in Sec. 108 and performed in the
Philippines. To be exempt from the
destination principle under Sec.
108(b)(1) and (2), the services must be:
a. Performed in the Philippines;
b. For a person doing business
outside the Philippines; and
c. Paid in acceptable foreign currency
accounted for in accordance with
BSP rules (Commissioner of Internal Revenue
vs. Burmeister and Wain Scandinavian Contractor
Mindanao, Inc. GR No. 153205, Jan. 22, 2007)

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
supply of such services to
zero percent (0%) rate;
4. Services rendered to
persons engaged in
international shipping or
international air transport
operations, including leases
of property for use thereof:
provided, that these services
shall be exclusively for
international shipping or air
5. Services performed by
subcontractors and/or
contractors in processing,
converting, of
manufacturing goods for an
enterprise whose export
sales exceed seventy
percent (70%) of total

6. Transport of
passengers and cargo
by domestic air or sea
vessels from the
Philippines to a foreign
country.
7. Sale of power or fuel
generated through
renewable sources of energy
such as, but not limited to,
biomass, solar, wind,
hydropower, geothermal,
ocean energy, and other
emerging energy sources
using technologies such as

Services rendered to:
• Registered enterprises within a separate
customs territory
• Registered enterprises within tourism
enterprise zones
(Above provision was vetoed by President
Duterte)
PROVISION OF
TRAIN LAW

ADDITIONAL
PROVISIONS
A. Items 1 and 5 shall be subject to 12% VAT and no
longer be considered export sales subject to 0% VAT
upon the satisfaction of the following conditions:
There is a successful establishment and implementation of an
enhanced vat refund system that grants refunds of creditable
input tax within 90 days from the filing of the vat refund
application with the Bureau
All pending VAT refund claims as of December 31, 2017 shall
be fully paid in cash by December 31, 2019.

ADDITIONAL
PROVISIONS
B. The Department of Finance
shall establish a VAT Refund
Center in the BIR and BOC that
will handle the processing and
granting of cash refunds or
creditable input tax.
5% of the total VAT collection of
the BIR and BOC from the
immediately preceding year shall
be • automatically appropriated
annually • treated as a special
account in the General Fund or

ADDITIONAL
PROVISIONS
C. The BIR and BOC shall submit to the Congressional
Oversight Committee on the Comprehensive Tax Reform
Program a quarterly report of all pending claims for refund

PROOF OF VAT
ZERO-RATED SALES
To prove that there is a direct export sale, the taxpayer
should present the following documents:
1. Sales invoice as proof of sale of
goods/services;
2. Export declaration and bill of lading or airway
bill as proof of actual shipment of goods from
the Philippines to a foreign country; and
3. The bank credit advice, certificate of bank
remittance or any other document proving
payment for the goods in acceptable foreign
currency or its equivalent in goods and
services (Philippine Gold Processing & Refining Corp.

ZERO-RATED
SALES
ZERO-RATED SALES VAT-EXEMPT SALES
AS TO EXEMPTION
The transaction is completely
free of VAT because the tax
rate applied on the tax base is
zero, hence the seller charges
no output tax.
Exemption only as it removes
the VAT at the exempt stage.
AS TO REFUND OF TAX
VAT payer can claim and enjoy
a credit or refund for the input
VAT payer cannot claim a credit
or refund for the input tax.
VAT-EXEMPT
SALES

ZERO-RATED
SALES
ZERO-RATED SALES VAT-EXEMPT SALES
AS TO BEING CONSIDERED AS TAXABLE SALES
Still considered as “taxable
sales” for the purpose of
measuring turnover sales.
Not considered as taxable
sales. A person who makes
only exempt sales is not a
taxable person for VAT
purposes and may not register
for VAT.
AS TO REGISTRATION
VAT registration is NOT
VAT-EXEMPT
SALES

VAT-Exempt Transactions
refers 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 tax) on
purchases.

B. Sale or importation of
fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock
and poultry feeds, including
ingredients, whether locally
produced or imported, used in the
manufacture of finished feeds
(except specialty feeds for race
A. Sale or importation 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
consumption; and breeding
stock and genetic materials
therefore;

C. Importation of personal and
household effects belonging to residents
of the Philippines returning from abroad
and non-resident citizens coming to
resettle in the Philippines; Provided, that
such goods are exempt from custom
duties under the Tariff and Customs Code
of the Philippines;
employment, wearing apparel, domestic animals,
and personal and household effects (except
vehicles, vessels, aircrafts machineries and
other similar goods for use in manufacture
which are subject to duties, taxes and other
charges) belonging to persons coming to settle
in the Philippines or Filipinos or their families
and descendants who are now residents or
citizens of other countries, such parties
hereinafter referred to as overseas Filipinos, in
quantities and of the class suitable to the
profession, rank or position of the persons
importing said items, for their own use and not
barter or sale, accompanying such persons, or
arriving within a reasonable time; Provided,
That the Bureau of Customs may, upon the
production of satisfactorily evidence that such
persons are actually coming to settle in the
Philippines and that the goods are brought from

VAT-EXEMPT TRANSACTIONS
E. Services subject
to percentage tax
under Title V of
the Tax Code, as
amended;
F. Services by
agricultural contract
growers and milling
for others of palay
into rice, corn into
grits, and sugar
G. Medical, dental,
hospital and
veterinary services
except those
rendered by
professionals;

H. Educational
services rendered by
private educational
institutions duly
accredited by the
DepEd, CHED, and
TESDA and those
I. Services rendered by
individuals pursuant to
an employer-employee
relationship;
J. Services rendered by regional
or area headquarters
established in the Philippines by
multinational corporations
which act as supervisory,
communications and
coordinating centers for their
affiliates, subsidiaries or
branches in the Asia-Pacific

K. Transactions which are exempt under international agreements to
which the Philippines is a signatory or under special laws except those
granted under P.D. No. 529 - Petroleum Exploration Concessionaires
under the Petroleum Act of 1949;
L. Sales by agricultural cooperatives duly registered and in good
standing with the Cooperative Development Authority (CDA) to their
members, as well as of their produce, whether in its original state or
processed form, to non-members, their importation of direct farm
inputs, machineries and equipment, including spare parts thereof, to be
used directly and exclusively in the production and/or processing of
their produce;
M. Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered and in good standing with the Cooperative
Development Authority;

N. Sales by non-agricultural, non-electric and non-credit cooperatives
duly registered with and in good standing with CDA; Provided, that the
share capital contribution of each member does not exceed Fifteen
Thousand Pesos (P15,000.00) and regardless of the aggregate capital
and net surplus ratably distributed among the members;
O. Export sales by persons who are not VAT-registered;

P. The following 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 trade or business.
b. Sale of real properties utilized for low-
cost and socialized housing as defined by
RA No. 7279, otherwise known as the
"Urban Development and Housing Act of
1992" and other related laws, such as RA
No. 7835 and RA No. 8763
c. Sale of residential lot valued at One
Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house and
lot and other residential dwellings
valued at Two Million Five Hundred
Thousand Pesos (P2,500,000.00) and
below,
BEFORE TRAIN law: not more than
P1,919,500.00 and not more than
P3,199,200.00
Provided, That beginning January 31, 2021,
the VAT exemption shall only apply to sale of
real properties not primarily held for sale to
customers or held for lease in the ordinary
course of trade and business, sale of real
property utilized for socialized housing as
defined by R.A. No. 7279, sale of house and
lot, and other residential dwellings with
selling price of not more than Two million
pesos (P2,000,000.000):
Provided, further, That every three (3) years
thereafter, the amount herein stated shall be
adjusted to its present values using the CPI,
as published by PSA.

BEFORE TRAIN law: not more P12,800.00 and does
not exceed P1,919,500
Q. Lease of residential units with a monthly rental
per unit not exceeding Fifteen Thousand Pesos
(P15,000.00);
Summary of Rules
Monthly rental P15,000 or less
regardless of the annual gross sales
VAT-exempt and not subject to 3%
percentage tax
Monthly rental above P15,000 but
annual gross sales do not exceed
P3,000,000
VAT-exempt but shall pay 3% percentage
tax under Sec 116 of NIRC
Monthly rental above P15,000 and
annual gross sales exceeds P3,000,000
Liable for 12% VAT

R. Sale, importation,
printing or publication of
books and any newspaper,
magazine, review or
bulletin which appears at
regular intervals with
fixed prices for
subscription and sale and
which is not devoted
principally to the
publication of paid
S. Transport of
passengers by
international carriers
T. Sale, importation or
lease of passenger or
cargo vessels and
aircraft, including
engine equipment and
spare parts thereof for
domestic or
international transport
operations;

U. 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
for international shipping or
transport operations]
V. Services of banks, non-
bank financial intermediaries
performing quasi-banking
functions, and other non-
bank financial intermediaries,
such as money changers and
pawnshops, subject to
percentage tax under
Sections 121 and 122,
respectively of the Tax Code

The following subsections are
added by TRAIN law:
W. 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

Lola Basyang
bought medicine
at Mercury Drug
Store. The gross
price of the
medicine is P784
inclusive of VAT.
How much is the
amount to be paid
ILLUSTRATION
QUESTION

Sales price, net of VAT (784/1.12)
P700
LESS: Senior citizen’s discount (700*20%)
P140
Amount to be paid by Lola Basyang
P560
ANSWER

added by TRAIN law:
X. Transfer of property
pursuant to Section 40(C)(2)
of the Tax Code, as amended;
(merger or consolidation)
Y. Association dues,
membership fees, and other
assessments and charges
collected on a purely

added by TRAIN law:
Z. Sale of gold to the Bangko
Sentral ng Pilipinas (BSP)
(previously zero-rated
transaction);
AA. Sale of drugs and
medicines prescribed for
diabetes, high cholesterol,
and hypertension beginning

added by TRAIN law:
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 do not exceed the
amount of Three Million Pesos (P3,000,000.00).
Note: Self-employed individuals and professionals
availing of the 8% on gross sales and/or receipts and
non-operating income, under Sections 24 (A)(2)(b)
and 24 (A)(2)(c)(2) of the NIRC shall also be exempt

REMEMBER
• A VAT registered person may elect that the above
exempt transactions shall not apply to his sales of
goods or properties or services.
• Once the election is made, it shall be irrevocable
for a period of 3 years counted from the quarter
election was made except for franchise grantees of
radio and TV broadcasting whose annual gross
receipts for the preceding year do not exceed
P10,000,000 where the option becomes perpetually

DETERMINE WHETHER THE
GIVEN ITEM IS VAT-EXEMPT
or not

Sale of drugs and medicines
prescribed for diabetes, high
cholesterol, and hypertension

VAT FINAL.pptx

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