Travel Agencies

The VAT on travel agency is based on its gross receipts which will not include:
1. Cost of airline or ship tickets
2. The reimbursement of expenses for services rendered by the third party other than the
travel agency and paid to such party
Examples of reimbursements are:
a)
b)
c)
d)
e)

Passport and visa fees

Hotel room charges
Bus and/or car tour charges
Guide fess, resort fees
Meal charges to tourist

If travel agency purchased tickets on a net basis, the VAT shall be on the margin between
the selling price to the passenger and the net purchase price; however, if such margin exceeds 9%
of the gross selling price of the ticket to the passenger, the BIR treats the transaction as a resale
which is taxable on the gross selling price.
If tour services are packaged and sold to a domestic tourist, the VAT will be based on the
total receipts of the tour operations excluding the fees paid to bus operators, resort and guide fees
and meal expenses which must be supported with receipts issued by the supplying company or
establishment. All other receipts will form part of the taxable gross receipts of the travel agency.
Illustration:
Levy & Gajeel Travel Inc., a VAT-registered travel agency, received P2,000,000, excluding VAT,
travel package from Laxus for a travel, together with his family, to Edolas Island.
Levy & Gajeels gross margin is 20% in the gross receipts plus VAT. The travel agency
segregated the following charges as advance expenses for services rendered by the third party:

Hotels , Restaurants and Caterers

The taxable base includes, among others, charges for rooms, laundry, and valet services,
foods and beverages consumption, corkage, handling charges for providing telephone, telex,
cable, or fax services, cake shop sales, lease to concessionaires, compensation, and other service
fees. It does not include:
a) Service charge billed separately and actually distributed to waiters and employees
b) Actual cost of long distance and overseas telephone calls, and other charges of the
telecommunication companies collected by the establishment
c) Local taxes

Illustration:

Lucy Restaurant obtained a catering service for Erza and Jellals wedding for an amount of
P2,000,000. The actual expenses incurred for the wedding is comprised of the following:

Media Advertising
The gross receipts subject to VAT are the following;
1. The amount of gross receipts representing agency commissions received by an
advertising agency of the services it performed as a broker for the media and the
advertiser

2. The amount representing gross receipts derived by the media from its advertising services
Nonlife Insurance
Rules to be applied on the premium o nonlife insurance;
1. If acquired from domestic or foreign companies authorized to transact risk business in the
Philippines 12% VAT based on premium
2. If acquired from
Philippines;

foreign companies not authorized to transact business in the

a) Through an authorized agent 10% of premium collected

b) Direct purchased by property owner 5% on the premium paid

Illustration:
Fullbuster Insurance provided the following data to Mr. Dragneel regarding his car insurance:

Services of Nonresident Persons

Services rendered in the Philippines by nonresident foreign persons shall be subject to
withholding VAT and income tax. The VAT withheld can be claim as input VAT by the
payor evidenced by duly filed BIR Form 1600
If the payor in non-VAT taxpayer, he still required to withhold VAT which may be treated
as assets or expenses whichever is applicable
The 12% VAT withheld form the service rendered by nonresident person is not allowed to
deduct input VAT

Illustration:
FTJ, a domestic corporation, leased the airc raft of Foreign Air for a rental fee of P500,000. How
much is the FTJs net amount to be remitted to Foreign Air?

Rental fees of nonresident owner or lessor of aircraft, machineries and other equipment
are subject to 7.5% final withholding tax.
The VAT on rental and/or royalties payable to nonresident owners of properties in the
Philippines shall be base4d on the contract price agreed upon by the licensor and the licensee.

Lease of Commercial and Residential Units

In general, gross receipts from lease of commercial units are subject to 12% VAT,
except when the lessor is Non-VAT and his total gross receipts do not exceed P1,919,500 per
year.
The gross receipts from lease of residential units are subject to the following rules:
1. If the monthly rental does not exceed P12,800 per unit per month, regardless of the
aggregate annual rentals, the lessor shall be VAT exempt and OPT.
2. If the monthly rental exceeds P12,800 per month per unit but the aggregate annual rentals
do not exceed P1,919,500, the lessor is exempt from VAT but subject to 3% OPT.
3. If the monthly income exceeds P12,800 per month per unit and the aggregate annual
rentals exceeds P1,919,500 the lessor is subject to 12% VAT

Illustration:

Mystogan Co,
a domestic corporation and a VAT-registered taxpayer, operates a dormitory building. 5 rooms
are leased to students for a monthly rent of P15,000 per room. In addition, Mystogan Co. also
leases a room as commercial space for concessionaires for P30,000 per month. Assuming that the
operation is for a 12-month period, the business tax of Mystogan Co;

Withholding Tax on Lease of Commercial Properties

Aside from subject to business tax, the gross receipts on lease of commercial properties
are subject to 5% withholding income tax.
Cana Realty, a VAT-registered business, is collecting a monthly rent of P50,000 (excluding VAT)
of a commercial property. The net amount to be collected per month after the 5% creditable
withholding income tax would be,

Books, Magazines and Newspapers

The sale, importation, printing or publication of books and any newspaper, magazine,
review, or bulletin are VAT-exempt given that;
1. Appear at regular intervals
2. With fixed prices for subscription and sale
3. Which is not devoted principally to the publication of advertisement
However bindery services rendered by VAT-registered company for another entity in VATexempt printing services are subject to VAT.
Illustration:
Elfman Publishers regularly published the following during the month with their
corresponding costs of production:

Agricultural Contract Growers and Millers of Agricultural Products

Agricultural contract growers (ACG) are persons producing for others poultry,
livestock,or other agricultural and marine food products in their original state such as:
1. Toll hatching receiving eggs from the breeders farm, sorting, fumigating, setting,
hatching, classifying of day-old broilers, sorting and delivering to other contract growers
2. Toll processing/dressing receiving of live broilers from contract growers, weighing,
killing, dressing, delivery, cut-ups and packing for sale
3. Reforestation contractors pursuant to the Government Reforestation Program.
Services rendered by ACG and milling for others of palay into rice, corn into grits, and
sugar cane into sugar are exempt from VAT.

Medical services
Medical, dental, hospital, and veterinary services are VAT-exempt. Hospital, laboratory
services, and medicines used for in-patients in performing medical procedures by a hospitals
special units (operating/ delivery room) are VAT-exempt, except;
Services rendered by health maintenance organizations
Services rendered by medical professionals engaged in the practice of their profession
who are either VAT-registered or VAT-registrable
Sale of drugs and medicine by hospital pharmacy or drug store not included in the
hospital bill
Illustration:

Fairy Hospital reported

the following medical bills of Wendy before VAT:

Educational Services
Educational services refer top academic, technical, or vocational education provided by
the private educational institutions duly accredited by the DECS, CHED, or TESDA and those
rendered by government educational institutions.
It does not include seminars, in-service trainings, review classes and other services
rendered by persons who are not accredited by the DECS, CHED or TESDA.
The input taxes charged by the suppliers of educational institutions cannot be used as
tax credit. Educational institutions are not among the exempt entities that have the option to
register for VAT purposes.

Work of Art, Literary Works and Musical Compositions

Sale by the artist of his works of art,literary works, musical compositions and similar
creations,or his service performed for the production of such works are now subject to VAT.
Example:
Park Bom composed 10 songs and sold the same to VIVA records for P300,000 each. The output
VAT in this case is P360,000 or (P300,000 x 10 x 12%).

Employees Services
Compensation income received by individuals derived from an employer-employee
relationship is exempt. Additional compensation in the form of commission income received by
an employee from his employer is not subject to VAT.

Franchise Grantees
The taxable base for VAT on the transactions of telecommunication companies is the
gross receipts they derive from their telephone, telegraph, telewriter exchange, wireless and other
communication facilities services, excluding the amounts earmarked as the foreign
administrations share relating to the services performed outside the Philippines.
Deposits for telephone instruments and the like are not subject to VAT. However, if it
is forfeited, they will be included in the gross receipts subject to VAT.
Amounts received for overseas dispatch, message, or conversation originating from
the Philippines which are subject to the overseas communication tax do not form part of gross
receipts for VAT purposes.

Zero-rated or Effectively Zero-rated Services

The law explicitly used one single criteria the place where the service was performed
as the jurisdictional basis for the imposition of the VAT on supply of services.
Accordingly, services performed outside the Philippines are zero-rated or effectively
zero-rated VAT.

Zero-rated or Effectively Zero-rated Organizations

VAT-registered business is allowed to deduct the related input VAT but is not allowed to
collect output VAT on its sale of goods or services. Organizations under this category:
1. PEZA or SBMA-Registered Enterprises
Under the cross border doctrine, a supply of service to PEZA-registered enterprise
shall be treated as effectively zero-rated VAT as long as the performance of service is within the
EXOZONE area. Enterprises located within the export processing zone are the once whose
products are destined to be used or consumed outside the Philippines.
2. International Organizations
The gross receipts of a service contractor from an international organization
granted tax exemptions from all direct and indirect taxes under special laws or international
agreement in the Philippines are subject to zero-rated VAT.
3. Other Organizations
Asian Development Bank (ADB)
International Rice Research Institute
(IRRI)
United States Agency for
International Development

U.S. Navy Supply Depot,

Department of Navy
World Heal Organization
International Labor Organization


Zero-rated or Effectively Zero-rated VAT Services by Domestic Corporations
1. Services rendered for a consideration paid inacceptable foreign currency and accounted
in accordance with the rules and regulations of the BSP

2. Services rendered to persons or entities whose exemption is under special laws or

international agreements tow which the Philippines is a signatory(foreign embassies with
reciprocity)

3. Services rendered to persons engaged in the international shipping or international air

transport operations, including leases of property for use thereof

4. Services performed by the subcontractors and/or contractors in processing, converting, or

manufacturing goods for an enterprise whose export sales exceed 70% of total annual
production

5. Transport of passengers and cargo by air or sea vessels from the Philippines to foreign

country