What is VAT (Value Added Tax)?

VAT stands for Value Added Tax. VAT is a type of sales tax which is levied on
consumption on the sale of goods, services or properties, as well as importation, in the
Philippines.

To simplify, it means that a certain tax rate (0% to 12%) is added up to the selling price
of a goods or services sold. It is also imposed on imported goods from abroad.

Who are required to be VAT Registered?

Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if the
aggregate amount of actual gross sales or receipts exceed One Million Nine
Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00).
A person required to register as VAT taxpayer but failed to register
Any person, whether or not made in the course of his trade or business, who
imports goods
What are the Types of VAT and Tax Rate?
1. VATable- 12%

On sale of goods and properties twelve percent (12%) of the gross selling price
or gross value in money of the goods or properties sold, bartered or exchanged
On sale of services and use or lease of properties twelve percent (12%) of
gross receipts derived from the sale or exchange of services, including the use or
lease of properties
On importation of goods twelve percent (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 as tax to be paid by the
importer prior to the release of such goods from customs custody; 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.
2. VAT Zero-Rated 0%

Zero-rated is a sale, barter or exchange of goods, properties and/or services

subject to 0% VAT pursuant to Sections 106 (A) (2) and 108 (B) of the Tax Code.
Zero-rated is usually pertaining to export sale of service or those zero-rated as
approved by special laws such as PEZA or Economic Zone registered companies.
3. VAT Exempt 0%

A sale of goods or transactions is considered VAT Exempt if it falls under SEC

109 Exempt Transactions.
Normally VAT Exempt transactions are basic necessities such as agricultural
products, tuition fees, lending activities, real properties, books, transportation, etc.

What is the BIR Form for VAT?

Theres two types of VAT Return

1. Monthly BIR Form 2550M is used to filed monthly VAT. Example: For the
month of August
2. Quarterly BIR Form 2550Q is used to file quarterly VAT. Example: For second
quarter (April to June)
What is VAT RELIEF?
Reconciliation of Listing for Enforcement (RELIEF) is a BIR program or software used to
submit Quarterly Summary Lists of Sales and Purchases (SLSP) which is a required
attachment to BIR Form 2550Q Quarterly VAT.

VAT Relief is usually submitted in DAT file and sent via email to esubmission@bir.gov.ph

When is the Deadline for Filing and Payment of VAT?

For the monthly VAT return, deadline is every 20th of the following month of the
applicable month. Example: For July VAT return, the deadline is August 20.
For the quarterly VAT return, deadline is every 25th of the following month of the
applicable quarter. Example: For the second quarter ending June 30, the deadline
is July 25
What is the Penalty for Non-Filing or Late Filing?
1. For failure to file, keep or supply a statement, list or information required on the
date prescribed shall pay and administrative penalty of One Thousand Pesos
(P1,000.00) for each such failure, unless it is shown that such failure is due to
reasonable cause and not to willful neglect; and
2. An aggregate amount to be imposed for all such failures during a taxable year
shall not exceed Twenty-Five Thousand Pesos (P25,000.00).

1. What is VAT?
VAT is a tax on consumer spending. It is collected by VAT-registered traders on their
supplies of goods and services effected within the State, for consideration, to their
customers. Generally, each such trader in the chain of supply from manufacturer
through to retailer charges VAT on his/her sales* and is entitled to deduct from this
amount the VAT paid on his/her purchases.
[*In some circumstances, particularly in the Construction Industry, VAT is not charged
by the supplier, but instead the VAT registered customer simply accounts for the VAT
as if it had been charged.]
The effect of offsetting VAT on purchases against VAT on sales is to impose the tax on
the added value at each stage of production hence Value-Added Tax. For the final
consumer, not being VAT-registered, VAT simply forms part of the purchase price.
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2. What is VAT charged on?

Most goods and services supplied in Ireland are subject to VAT. Goods imported into
Ireland from outside the EU are also subject to VAT this is charged by Customs at
the point where the goods enter the State. See Imports.
Persons engaged in business in Ireland who receive goods from a trader within the
EU, or services (with certain exceptions) from any trader established anywhere outside
Ireland, including outside the EU, are required to account for the VAT payable on
receipt of the goods or services as if they had actually made the supply themselves.
This requirement applies to traders generally and also to entities that would not
normally be engaged in taxable supplies, such as Government Departments, Local
authorities and other public bodies, charities,universities and hospitals.
As may be seen from the example below, the consumer pays a total of 615 for the
finished product, of which 115 is VAT.
 What is VAT?
Purchase Transactions Sale Transactions
Price VAT Total Value Price VAT Total Credit Net to
Paid Purchase Added Charged @ Sale for Collector
(Ex.VAT) Price (Ex.VAT) 23% Price VAT General
Paid
Manufacture - - - 100 100 23 123 0 23
r
Wholesaler 100 23 123 100 200 46 246 23 23
Distributor 200 46 246 100 300 69 369 46 23
Retailer 300 69 369 200 500 115 615 69 46
Consumer 500 115 615 - - - - - -

3. Taxable person and accountable person

A taxable person is any person who independently carries on a business in the
Community or elsewhere. It includes persons who are exempt from VAT as well as flat-
rate farmers. VAT law provides that VAT is chargeable on the supply of goods and
services effected within the Community or elsewhere for consideration by a taxable
person acting as such, other than in the course or furtherance of an exempted activity.
A person who is required to charge VAT is referred to as an accountable person. An
accountable person is, therefore, a taxable person (an individual, partnership,
company etc.) who supplies taxable goods or services in the State and who is, or is
required to be, registered for VAT. See VAT Registration.

4. Who must register for VAT?

Persons who are involved in the taxable supply of property and persons whose annual
turnover from supplies of taxable goods and services in the State, or the value of
whose acquisitions of goods from other EU Member States, exceed or are likely to
exceed certain thresholds are obliged to register for VAT. See VAT Registration.
Persons whose turnover from taxable activities does not exceed the thresholds are not
obliged to register but they may register for VAT if they so wish.
Persons who are in receipt of a service from a business established in another
Member State or outside the EU are accountable persons under Place of Supply rules.
However, persons who do not have an establishment in the State but who either
supply and install goods in the State or who supply gas through the natural gas
distribution network or electricity in the State are not accountable persons. A sub-
contractor not established in the State who provides construction services in the State
to principal contractors is not an accountable person, but may register for VAT in order
to claim a repayment of input VAT.
Revenue issues a VAT registration number to a person when it is satisfied that the
person is carrying on a taxable business in the State.

5. Exemptions
A person who makes exempt supplies, comes within the scope of the term taxable
person but this has no bearing on his/her VAT status. Goods and services of the kind
listed in Schedule 1 (PDF, 218KB) are exempt from VAT and suppliers of such
goods and services are not entitled to register for VAT unless they also make taxable
supplies. VAT registration will refer to their taxable supplies only. Exempt suppliers
may be required to register and account for VAT in respect of intra-Community
acquisitions and services from abroad that are taxable where received and on goods
and services received by them generally. For special provisions relating to property
please see the Guide to VAT on Property.

6. Non Taxable Entities

The State, local authorities and bodies established by statute are not normally required
to register for VAT in respect of supplies of goods or services by them but may be
required to register and account for VAT in respect of goods and services received by
them or where services or transactions by them create a significant distortion of
competition. SeeState Procurement.
The entities concerned include Government Departments, State sponsored bodies, An
Garda Siochana, the Defence Forces, the Health Services Executive, public hospitals,
enterprise boards, educational establishments (such as universities, institutes of
technology, schools, VECs), local authorities including regional authorities, harbour
authorities.
Third level educational establishments may be required to register for VAT in respect
of certain research services. Where facilities are provided for taking part in sport by a
not for profit organisation that organisation may be required to register for VAT.
See Sport Facilities.

7. Basis of accounting
Registered persons normally account for VAT on the invoice ('sales') basis. This
means that they become liable for VAT by reference to invoices issued and sales
made by them irrespective of whether payment has actually been received
(see Invoices Credit Notes).
However, certain persons may opt to account for VAT on the moneys received ('cash')
basis i.e. by reference to payments actually received by them (see Money Received
Basis).
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8. Reverse charge/Self-accounting
VAT is normally charged and accounted for by the supplier of the goods or services.
However, in certain limited circumstances the recipient of goods or services, rather
than the supplier, is obliged to account for the VAT due. This applies:-
on the intra-Community acquisition of goods from another Member State
(see Acquisitions from other EU Member States)
on receipt from abroad of services that are taxable where received (see Supply
of Services, paragraph 3)
on receipt from abroad of cultural, artistic or entertainment services from persons
not established in the State (seeSupply of Services, paragraph 9)
repair, valuation or contract work carried out on movable goods in another State
in certain circumstances (seeSupply of Services, paragraph 15)
where goods are installed or assembled for certain designated persons in the
State by a supplier who is not established in the State (see Registration,
paragraph 8)
where intra-Community transport and ancillary services are supplied by a non-
established person to an accountable person in the State (see Supply of Services,
paragraph 4)
where construction services are supplied to a principal contractor by a sub-
contractor, whether or not the sub-contractor is established in the State
(see Registration, paragraph 8)
 on the receipt of gas through the natural gas distribution system, or electricity,
from a person not established in the State by certain categories of persons in the
State

on receipt of greenhouse gas emission allowances from another taxable person

established in the State or abroad

where ownership of goods is transferred by way of a vesting order to NAMA

where a taxable person carries on a business in the State which consists or

includes dealing in scrap metal

where there is a supply of construction work in the State between two connected
persons

9. Amount on which VAT is chargeable

The amount on which VAT is chargeable is the total sum the person supplying the
goods or services becomes entitled to receive, including all taxes, commissions, costs
and charges but excluding the VAT chargeable in respect of the transaction.

10. What are the rates of VAT?

There are a number of different rates of VAT applied in Ireland.
In general, the standard rate of VAT applies to the supply of goods and services in
Ireland. In specific circumstances VAT is charged at the reduced rate, a second
reduced rate, the zero rate and a special rate that applies principally to the livestock
sold by VAT registered traders.
Its worth noting that the reduced rates apply to a number of labour-intensive services
while the zero rate applies to many foods, oral medicines, childrens shoes and
childrens clothes.
A special scheme applies to agricultural supplies made by farmers who are generally
not required to register for VAT.
In addition to these rates there are a number of activities that are exempt from VAT.
These include many services supplied in the public interest, for example education,
public transport and areas of childcare.
The goods and services exempt from VAT, together with those liable to VAT at the zero
or reduced rates are all listed in VAT legislation in Schedules 1, 2 and 3 of the Value
Added Tax Consolidation Act.

11. Right to deduct VAT

In computing the amount of VAT payable in respect of a taxable period, a registered
person may deduct the VAT charged on most goods and services which are used for
the purposes of the taxable business. No deduction may be made, however, for the
VAT on goods and services used for any other purpose (see VAT not Deductible). Non-
established sub-contractors providing construction services that are subject to reverse
charge may register for VAT if they wish to claim a refund. (See VAT Registration.

12. VAT returns

A VAT-registered person normally accounts for VAT on a two-monthly basis
(January/February, March/April etc.). The return is made online on the Revenue ROS
system together with a payment for any VAT due. The due date for the submission of
the ROS VAT return is the 23rd of the month following the end of the taxable period.
For example, a return for the VAT period May/June is due by 23rd July. (See
Accounting for VAT).

13. Trade between different EU Member States

In the European Single Market, VAT is accounted for on sales of goods between
traders EU Member States by a system of intra-Community supplies and acquisition of
goods.The supplies are zero-rated in the EU Member State of origin and VAT is
accounted for by the VAT-registered recipient in the EU Member State of destination.

14. Imports (non-EU)

For VAT purposes imports are goods brought into Ireland from non-EU countries. As a
general rule, imported goods are liable to VAT at the point of entry into the State, at the
same rate as applies to the sale within the State of similar goods.

15. Exports (non-EU)

For VAT purposes exports are goods supplied subject to a condition that they are to be
transported to a place outside the EU. The zero rate of VAT applies to exports.

16. Zero-rating scheme for qualifying businesses (Section 56 of the VAT

Consolidation Act 2010)
This scheme provides that an accountable person who derives not less than 75% of
their annual turnover from exports or intra-Community supplies of goods out of the
State, can apply to have most goods and services supplied to them zero-rated. Intra-
Community acquisitions and imports made by them will also be zero-rated.
The zero rating does not apply to supplies of goods or services which, in the normal
course would not be deductible - for example, passenger motor vehicles, petrol, food,
drink or most accommodation. A VAT-registered person who thinks they might qualify
under this scheme should make an application to the Revenue District responsible for
their tax affairs. See Zero rating of Goods and Services. The authorisation will take
effect two weeks after the date of its issue. This is to allow the authorised person
sufficient time to forward copies of the authorisation to his/her suppliers. Accordingly, a
qualifying person should apply in good time before the desired date of effect of the
authorisation. Likewise when the authorisation is nearing its expiration date an
application should be made in advance of the expiration date to avoid a lapse in the
authorisation. Otherwise normal VAT rules will apply.

17. Property transactions

The main features of the VAT on Property rules are:-

The first supply of newly developed property is taxable for a period of five years
from completion

The first supply of newly developed residential property is always taxable

The second and subsequent supply is taxable for a period of two years following
occupation
 There is an option to tax the supply of properties where the supply would
otherwise be exempt

Lettings are exempt but where the letting is between unconnected parties there is
an option to tax the rents. The option to tax also applies where the parties are
connected but the lessee is entitled to deduct over 90% of the VAT charged on the
rent

A Capital Goods Scheme which ensures that the amount of VAT deductible on
acquisition or development of a property will correspond with the use of the
property over a period of 20 years (10 years in the case of refurbishment work)

There are transitional rules to ensure that properties that have been developed
under the old system will pass into the new system with a minimum of disruption
The system is described in detail in the Guide to VAT on Property.

18. Flat-rate farmers

Farmers who do not register for VAT are compensated for the VAT they are charged on
their purchases by means of a flat-rate addition to the prices at which they sell their
agricultural produce and agricultural services to VAT-registered persons. These
farmers are known in the VAT system as flat-rate farmers. A farmer may nonetheless
be obliged to register in respect of the intra-Community acquisition of goods, certain
services received from abroad and certain other supplies. (See (VAT Registration).

19. Repayment of VAT to foreign businesses

In general, persons who are engaged in business outside the State but who are not
engaged in business in the State can claim a refund from Revenue of VAT charged to
them in respect of services and goods supplied to them in the State for business
purposes, where the VAT would be deductible by them if they were accountable
persons in the State. (See: eBrief No. 90/2009: New Electronic VAT Refund (EVR)
procedures with effect from 1 January 2010).
Since 1st January 2010 the procedure for the reimbursement of VAT incurred by EU
taxable persons in Member States where they are not established has been replaced
by a fully electronic procedure, thereby ensuring a quicker refund to claimants. Refund
applications must be made through an electronic portal set up by the Member State of
establishment of the applicant. Each application is subject to an electronic approval
process in the Member State of establishment before being passed on to the Member
State where the VAT was incurred by the business (the Member State of refund).

20. Repayments to unregistered persons

There are special provisions for repayment of VAT incurred by unregistered persons in
certain cases e.g. on farm buildings by unregistered farmers, on supplies to
unregistered sea-fishermen, on certain supplies to disabled persons and to diplomats.

21. Records to be kept

A VAT-registered person must keep full and true records of all business transactions
which affect their liability to VAT. The records must be kept up to date and must be
sufficiently detailed to enable them to accurately calculate a liability or repayment and
to enable Revenue to check the calculation, if necessary. Records must normally be
retained for six years from the date of the latest transactions to which they refer,

22. Appeals
A person has the right to appeal against Section 110 estimates, Section 111
assessments, a determination made by Revenue in relation to the rate of VAT
chargeable and in relation to whether an activity is an exempt activity. A person also
has the right of appeal in relation to charges made in accordance with regulations, for
example, in connection with an application for de-registration, and in relation to all
claims for repayment. (See Accounting for VAT)
Any question of fact or law may be brought before the Appeal Commissioners, and the
taxpayer if dissatisfied with the decision of the Appeal Commissioners may have the
appeal re-heard by the Circuit Court. Both the taxpayer and Revenue may appeal to
the High Court on a point of law and from there to the Supreme Court. As VAT is
governed by EU law, the Appeal Commissioners or any of the courts may refer the
case to the European Court of Justice (ECJ).
Matters which may be appealed also include:-

a charge to tax in connection with the issue of an incorrect invoice or the issue of
an invoice showing tax by a non-registered person,

compulsory group registration, refusal to allow group registration and the

cancellation of an existing group registration

a determination of open market value in relation to certain supplies between

connected persons

the refusal by Revenue to authorise a person to operate as a refunding agent for

the VAT Retail Export Scheme

the treatment of a person who allows supplies to be made on land owned,

occupied or controlled by them, as jointly and severally liable with another person

a charge to tax in accordance with regulations

a claim for repayment of VAT

a refusal by Revenue to treat a person as an accountable person

a refusal by Revenue to accept that an expression of doubt is genuine (see

paragraph 23 below)

23. Letter of expression of doubt

VAT law provides that where a person is in doubt about the application of VAT law to a
transaction, including the rate of VAT, he/she may lodge a letter of Expression of
Doubt with Revenue. If the expression of doubt is accepted by Revenue as genuine,
interest will not apply to any tax payable until the matter in doubt is resolved.
In the event that Revenue refuses to accept that the expression of doubt is genuine, it
is open to the taxpayer to have such refusal referred to the Appeal Commissioners.

24. Internal Review procedures

Where a taxpayer wishes to seek a review of Revenue's handling of their tax affairs, or
a decision made by a Revenue official, they can ask for an internal review to be
carried out either:

by a senior Revenue official at a local level who was not involved in the original
decision

by Revenues Internal Reviewer alone

 jointly by Revenues Internal Reviewer and an External Reviewer
Requests for an internal review can be made to the Internal Review Unit, Revenue
Commissioners, Dublin Castle, Dublin 2.

25. Revenue on-line Service (ROS)

ROS is a secure on-line service that enables taxpayers and agents to interact
electronically with Revenue. It offers taxpayers a quick, secure and cost effective
method to manage their tax affairs online. ROS enables a taxpayer to view their own
current position with Revenue for various taxes and levies, to file tax returns, including
the VAT 3 returns and annual Return of Trading Details (RTD) and to make payments
online in a variety of methods. Traders can register for ROS by accessing the ROS
website.