Rmo 7-06

(1)
December 15, 2005
REVENUE MEMORANDUM ORDER NO. 07-06
SUBJECT : Prescribing Guidelines and Procedures in the Processing

of Applications for Zero-Rating of Effectively Zero-Rated
Transactions for Value-Added Tax Purposes
TO : All Internal Revenue Officers and Others Concerned
I. PURPOSE
This Memorandum Order is being issued to provide guidelines and

procedures to:
1. Facilitate the processing of applications for VAT zero-rating

pursuant to the provisions of Sections 106(A)(2) and 108(B)
of the National Internal Revenue Code of 1997, as last amended
by Republic Act No. 9337 .
2. Prescribe standard report forms to be used by all concerned offices in

the implementation of this Order.
II. GUIDELINES AND POLICIES
1. All Applications for VAT Zero-Rate (Annex "A") except those of

Large Taxpayers shall be processed and approved by the Audit
Information, Tax Exemption and Incentives Division (AITEID)
under the Assessment Service.
The Large Taxpayers Audit and Investigation Divisions I and II

(LTAID I and II) and Large Taxpayers District Office (LTDO) shall
process applications for VAT zero-rating of effectively zero-rated
transactions of Large Taxpayers under their jurisdiction. Guidelines
and procedures in the processing of the same shall be covered by a
separate revenue issuance.
In no case shall Revenue District Offices (RDOs) be allowed to
Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2016 1
process and approve/disapprove applications for VAT Zero-Rate.
2. Taxpayers shall file their Applications for VAT Zero-Rate directly

with the AITEID or with the LTAID I and II/LTDO, as the case may
be.
3. The AITEID shall only accept Applications for VAT Zero-Rate as

prescribed under Annex "A" hereof, with complete supporting
documents.
The receiving office shall check on the completeness of the

documentary requirements to be filed together with the Application
for VAT Zero-Rate before stamping the word "RECEIVED" on the
application. In case of partial compliance, the applicant shall be
informed of the missing or additional requirements.
4. The Application for VAT Zero-Rate shall be accomplished and filed

by the seller (not by the purchaser of goods, properties and/or
services) to cover transactions qualified for effective zero-rating. The
Application for VAT Zero-Rate shall be filed only by
VAT-registered sellers to cover sale of goods, properties or services
to qualified buyers certified or endorsed, whenever necessary, by the
concerned government regulatory agency. aEACcS
5. The Application for VAT Zero-Rate shall be processed and

approved/disapproved within fifteen (15) working days from receipt
of the application with complete supporting documents. If there are
legal issues involved in an application, the same shall be referred to
the Law Division/VAT Review Committee for legal interpretation of
vague provisions of the law and the taxpayer shall be accordingly
informed of the status of its application. Processing shall be made
only upon receipt of the legal opinion from the said Office. The VAT
Review Committee shall transmit the necessary legal opinion to the
AITEID within thirty (30) days from receipt of referral. For
disapproved applications, the reason/s for the denial shall be clearly
stated in the application.
6. For applications requiring favorable endorsement from other

regulatory agencies, processing thereof shall be made only upon
official receipt by AITEID of the annual master file and/or the
separate endorsement letter, as the case may be, from the said
agencies.
7. Approval for VAT zero-rating shall be required only for transactions

which fall under the provisions of Sections 106(A)(2)(a)(3)(5) and
(6); 106(A)(2)(c); and 108(B)(3),(4) and (5) of the National Internal
Revenue Code (NIRC) of 1997, as last amended by Republic Act
No. 9337. Accordingly, transactions falling under the provisions of
Sections 106 (A)(2)(a)(1),(2), and (4); 106(A)(2)(b); and
108(B)(1),(2),(6) and (7) of the NIRC which are automatically
considered as zero-rated shall not be covered by this Order.
8. The approval of Applications for VAT Zero-Rate shall be given

prospective effect. All approved Applications for VAT Zero-Rate
shall take effect on the date the application was received by the
AITEID and in no case shall it be given retroactive effect.
9. The approved Application for VAT Zero-Rate shall be valid until

December 31 of the year of application and renewable every year
thereafter. The application for renewal shall be filed on or before the
last working day of December of each year. For applications filed on
or after the first working day of January, the effectivity date thereof
shall be reckoned on the date of its actual receipt. However, for
applications for renewal filed by suppliers of qualified exporters who
were not included in the first masterlist submitted by concerned
regulatory agencies, the effectivity date of approval shall be
reckoned on the date of official endorsement by the said regulatory
agency or the date of receipt of application, whichever comes later.
10. The approved Application for VAT Zero-Rate shall be revoked in the
event that the taxpayer-applicant was found to have committed
misrepresentations on the application or the exporter was found to
have been erroneously endorsed for VAT zero-rating. The revocation
shall be retroactive to the date when the application was approved.
11. The AITEID shall maintain a record of all applications received and
approved/disapproved. Every application received shall be assigned
an Application Number (AN) while different set of control numbers
shall be assigned to all approved/disapproved applications.
12. The LTAID I and II/LTDO shall submit to AITEID quarterly/annual

list of Approved Applications for VAT Zero-Rate, within 30 days
following the close of the quarter/year for consolidation by the latter
for purposes of dissemination to all concerned internal and external
offices.
13. The AITEID shall receive the official annual masterlist and/or
separate endorsement letters from concerned government regulatory
agencies containing information on registered exporters entitled to
VAT zero-rated purchases. The AITIED shall furnish LTS with copy
of the masterlist/endorsement as reference in the processing of the
application under their jurisdiction.
III. PROCEDURES
A. Receiving Personnel
1. Prior to receiving the Applications for VAT Zero-Rate
a. Review the details appearing in the application and check

whether all pertinent information are properly filled up and
the application is accomplished by the seller of goods,
properties or services; and
b. Ascertain the completeness of the pertinent documents

required to be attached to the application as specified in the
checklist (Annex "B", "B1" and "B2"). In case of partial
compliance, the applicant shall be informed of the missing or
additional requirements. ScTIAH
2. Receive the Applications for VAT Zero-Rate with complete

supporting documents in four (4) copies to be distributed as follows:
Original Taxpayer (after approval/disapproval)

Duplicate AITEID (file)
Triplicate AITEID (with the docket)
Quadruplet Taxpayer (upon filing)
3. Indicate the Application Number (AN) on the appropriate space

provided therefor immediately upon receipt of the application. The
assignment of a control number shall be made sequentially following
the order of receipt of the application. The serial number shall
likewise reflect the year of filing of the application.
Example:
Office - Year - AN

AITEID - 2006 - 0001
The above serial number indicates that the application was the first
application received by the AITEID in the year 2006.
4. Record the receipt of the application in the Logbook of Received
Applications for Zero-Rate by indicating the following information:
a. Date of receipt;
b. Application number;
c. Name and TIN of Applicant;
d. Name and TIN of Customer;
e. Transaction applied for; and
f. Remarks
5. Forward the application form together with all the attachments to the
Revenue Officer for processing of the Applications for VAT
Zero-Rate.
B. Revenue Officer
1. Receive the Applications for VAT Zero-Rate together with all the
supporting documents from the Receiving Personnel.
2. Review and evaluate the supporting documents attached to the

application form.
3. Ascertain the veracity of all the information contained in the

application and the authenticity of all submitted supporting
documents.
a. Verify using the ITS facilities whether the applicant is a

VAT-registered supplier as of the date of application.
b. Verify the correctness of the name, address and TIN of the

taxpayer against its ITS records.
4. Verify if the required favorable endorsement from concerned

government regulatory agencies has been secured prior to the filing
of the application, whenever applicable.
a. Verify if the purchaser is included in the current annual

masterlist of enterprises endorsed for VAT zero-rating;
b. In case the customer is not yet included in the annual

masterlist, verify if an individual endorsement letter from the
concerned government regulatory agency accompanies the
application.
c. Check the legitimacy of the copies of endorsement submitted

by the taxpayer by comparing the same with the copies of
endorsements officially transmitted to the BIR by the
government agency concerned; and
d. Ascertain the legal and/or factual basis invoked by the

applicant in securing approval of Application for VAT
Zero-Rate. Determine whether the transaction applied for
actually qualifies for zero-rating in accordance with the
provisions of the NIRC and its implementing rules and
regulations, special laws or international agreements. AcaEDC
5. Fill up all the appropriate spaces in the application form indicating

thereat the results of the evaluation of the Application for VAT
Zero-Rate as follows:
Item No. 8 Indicate the legal basis for VAT zero-rating (i.e. the
specific law or international agreement that grants the
benefit of VAT zero-rating)
Item No. 10 Mark the appropriate box provided to indicate which

government regulatory agency made the favorable
endorsement of the purchaser.
Item No. 11 State the result of evaluation and recommend for

approval or disapproval of the application. Should
there be partial approval, the disapproved portion must
be clearly stated in the form.
Item No. 12 Indicate the specific instructions/remarks for strict

compliance of the taxpayer. Any violation of the terms
and conditions stated on this space of the application
shall constitute a valid ground for revocation of the
approved application even before its expiry date.
The following information shall be indicated on this

portion of the accomplished application:
*Effectivity "Unless sooner revoked, VAT-Zero

Rate is valid from (date) to (date)."
*Invoicing "Applicant/Seller must always issue

invoice/receipt where the words ZERO-RATED SALE
are conspicuously imprinted or marked thereon."
*Exclusivity "For exclusive delivery of the specific

goods/services to the specific buyer"
6. Affix initial on the duplicate and triplicate copies of the

accomplished application form;
7. Forward the accomplished application form together with the

supporting documents to the Section Chief for review.
C. Section Chief
1. Receive the duly accomplished Applications for VAT Zero-Rate

together with all the attachments from the Revenue Officer.
2. Review the evaluation made by the Revenue Officer on the

application containing his initial.
3. Affix initial in the application form to manifest approval.
4. Forward the entire processed application and all supporting

documents to the Division Chief for final review and approval.
5. Review the quarterly/annual List of Approved Applications for VAT

Zero-Rate (Annex "C") prepared by the Releasing Personnel before
transmittal to the Division Chief.
6. Receive from LTAID I and II/LTDO the quarterly/annual List of

Approved Applications for VAT Zero Rate.
7. Prepare a consolidated List of Approved Applications for VAT

Zero-Rate (Annex "D") for transmittal to the Division Chief for
review.
D. Division Chief
1. Receive the duly validated Applications for VAT Zero-Rate together

with the attachments from the Section Chief.
2. Review the basis used in processing the application to ascertain if the

same conforms to all pertinent laws, rules, regulations and issuances.
Refer applications to the Law Division/VAT Review Committee of
the National Office if the same requires legal interpretation of vague
provisions of the law.
3. Approve/disapprove the Applications for VAT Zero-Rate.
4. Forward the approved/disapproved applications together with all the

supporting documents to the Releasing Personnel for release to the
taxpayer-applicant. IaHDcT
5. Receive from the Section Chief the quarterly/annual list or

consolidated list, as the case may be, of Approved Applications for
VAT Zero-Rate.
6. Review the above lists before transmittal to the (AITEID)

Assessment Service, as the case may be.
E. Releasing Personnel
1. Receive the approved/disapproved Application for VAT Zero-Rate

from the Division Chief. Indicate immediately the Control Number
in Item No. 9 of the approved application. The assignment of the
Control Number shall be made sequentially following the order of
receipt of the approved applications for VAT zero-rating from the
Division Chief. The said number shall contain the Control Number
and the year of approval.
Example:
Office - Year - CN

AITEID - 2006 - 0001
The above serial number indicates that the application is the first
application approved by AITEID for the year 2006. The Control
Number will not necessarily match the Application Number referred
to in Procedure A.3 above.
2. Post in the "Remarks" column of the Logbook of Received

Applications the action taken (i.e., whether the application is
approved or disapproved). Unfilled "Remarks" column in the
logbook will indicate the pendency of the application.
3. Record all pertinent information contained in the

approved/disapproved application in the logbook of
Approved/Disapproved Applications for VAT Zero-Rate by
indicating the following information:
a. Date of receipt
b. Control Number (for approved applications only)
c. Application Number
d. Name and address of seller/applicant
e. TIN of seller/applicant
f. Name and address of purchaser
g. TIN of purchaser
h. Complete description of approved zero-rated sale of goods,

properties or services (for approved applications only)
i. Effectivity date (for approved applications only)
4. Prepare quarterly/annual List of Approved Applications for VAT

Zero-Rate indicating therein the following information:
a. Control Number
b. Name, TIN of seller and RDO code
c. Name, TIN of buyer and RDO code
d. Complete description of approved zero-rated sale of goods,

properties or services
e. Effectivity date
5. Forward the above list to the Section Chief for review.
B. At the Law Division/VAT Review Committee
1. Receive the Application for VAT Zero-Rate referred by AITEID for

resolution of legal issues.
2. Evaluate the merits of the case based on pertinent laws, rules,

regulations and/or issuances. HCDaAS
3. Prepare and transmit necessary legal opinion to the AITEID within

thirty (30) days from receipt of referral.
C. At the Assessment Service
1. Receive from the AITEID the consolidated quarterly/annual List of

Approved Applications for VAT Zero-Rate.
2. Transmit to the concerned internal and external offices the

quarterly/annual List of Approved Applications for VAT Zero-Rate.
IV. REPEALING CLAUSE
All other existing issuances or portions thereof inconsistent with this Order
are hereby repealed or modified accordingly.
V. EFFECTIVITY
This Order shall take effect immediately.
(SGD.) JOSE MARIO C. BUAG

Commissioner
Bureau of Internal Revenue
ANNEX A
ANNEX B
ANNEX B1
ANNEX B2
ANNEX C
ANNEX D
(2)
December 8, 1998
REVENUE REGULATIONS NO. 13-98
SUBJECT : Implementing Republic Act No. 8424, "An Act Amending

the National Internal Revenue Code, as amended"
Specifically Section 34 (H) Relative to the
Deductibility of Contributions or Gifts Actually Paid or
Made to Accredited Donee Institutions in Computing
Taxable Income
SECTION 1. Definition of Terms. For purposes of these

Regulations, the terms herein enumerated shall have the following meanings:
a) "Non-stock, non-profit corporation or organization" shall refer to a

corporation or association/organization referred to under Section 30 (E) and (G) of
the Tax Code created or organized under Philippine laws exclusively for one
or more of the following purposes: cdasia
(i) religious;
(ii) charitable;
(iii) scientific;
(iv) athletic;
(v) cultural;
(vi) rehabilitation of veterans; and
(vii) social welfare
no part of the net income or asset of which shall belong to or inure to the benefit of
any member, organizer, officer or any specific person.
b) "Non-government Organization (NGO)" shall refer to a non-stock,

non-profit domestic corporation or organization as defined under Section 34
(H)(2)(c) of the Tax Code organized and operated exclusively for scientific,
research, educational, character-building and youth and sports development,
health, social welfare, cultural or charitable purposes, or a combination thereof, no
part of the net income of which inures to the benefit of any private individual.
(i) Which, not later than the fifteenth (15th) day of the third month
after the close of the NGO's taxable year in which contributions
are received, makes utilization directly for the active conduct of
the activities constituting the purpose or function for which it is
organized and operated, unless an extended period is granted by
the Secretary of Finance, upon recommendation of the
Commissioner;
(ii) The level of administrative expenses of which shall, on an

annual basis, not exceed thirty percent (30%) of the total
expenses for the taxable year; and
(iii) The assets of which, in the event of dissolution, would be

distributed to another accredited NGO organized for similar
purpose or purposes, or to the State for public purpose, or
purposes, or to the state for public purpose, or would be
distributed by a competent court of justice to another accredited
NGO to be used in such manner as in the judgment of said court
shall best accomplish the general purpose for which the
dissolved organization was organized.
(c) "Utilization" by an accredited NGO shall refer to
(i) Any amount in cash or in kind, including administrative

expenses, paid or utilized by an accredited NGO to accomplish
one or more purposes for which it was created or organized; or
(ii) Any amount paid to acquire an asset used, or held for use,
directly in carrying out one or more purposes for which the
accredited NGO was created or organized; or
(iii) Any amount set aside for a specific project which comes within
one or more purpose or purposes for which the accredited NGO
was created, but only if at the time such amount is set aside, the
accredited NGO has established to the satisfaction of the
Commissioner of Internal Revenue that the amount will be
utilized for a specific project within a period not to exceed five
(5) years, and the project is the one which can be better
accomplished by setting aside such amount than by immediate
payments of funds: Provided, That, the utilization requirements
prescribed under Sec. 5 of these Regulations shall be complied
with; or
(iv) Any amount in cash or in kind invested in any activity related to

the purpose for which it was created or organized.
(v) Any amount in cash or in kind invested in capital sustaining and

generating activities, such as but not limited to, endowment
funds, trust funds, money market placements, shares of stock
and similar instruments: Provided, That, any income derived
from these investments shall be exclusively used in activities
directly related to one or more purposes for which the
accredited NGO was created or organized.
(d) "Accrediting Entity" shall refer to a non-stock, non-profit

organization composed of NGO networks, duly designated by the Secretary of
Finance to establish and operationalize a system of accreditation to determine the
qualification of non-stock, non-profit corporations or organizations and NGOs for
accreditation as qualified-donee institutions. The Secretary of Finance and the
Commissioner of Internal Revenue shall oversee, monitor and coordinate with the
Accrediting Entity to ensure that the provisions of these Regulations are complied
with. In this connection, the Secretary of Finance or the Commissioner of Internal
Revenue or their duly authorized representative shall sit as ex-officio member of
the Board of Trustees of the Accrediting entity with the right to vote. The
Secretary of Finance may also designate an official of a concerned government
agency, e.g. Department of Science and Technology, to assist the Board of
Trustees in the accreditation of foundations.
The Secretary of Finance shall designate an entity as an Accrediting Entity

provided it has a countrywide membership composed of (a) NGOs which belong to
the sector that the Private Accrediting Entity intends to certify; (b) NGOs which
have been in existence for at least five (5) years; and (c) NGOs not more than 50%
of the members of which belong to other existing NGOs or Private Accrediting
Agencies. dctai
The Philippine Council for NGO Certification, Inc. (PCNC), a non-stock,

non-profit corporation which was established by several NGO networks (e.g.,
Caucus of Development NGO Networks (CODE-NGO); Philippine Business for
Social Progress (PBSP); Association of Foundations (AF); League of Corporate
Foundations (LCF); Bishops-Businessmen's Conference for Human Development
(BBC); and the National Council for Social Development Foundation (NCSD), has
been duly designated by the Secretary of Finance as an Accrediting Entity pursuant
to Memorandum of Agreement dated January 29, 1998 executed by and between
the Secretary of Finance and PCNC's Interim Chairman.
(e) "Religious purpose" shall refer to the promotion, propagation and

accomplishment of any form of religion, creed or religious belief recognized by the
Government of the Republic of the Philippines.
(f) "Charitable Activity" shall refer to extending relief to the poor,

distressed and underprivileged and shall include fighting against juvenile
delinquency and community deterioration.
(g) "Scientific and research purpose" shall refer to undertaking or

assisting in pure or basic, applied and scientific research in the field of agriculture,
forestry, fisheries, industry, engineering, energy development, food and nutrition,
medicine, environment and biological, physical and natural sciences for the public
interest.
(i) Basic research shall refer to an experimental or theoretical work

undertaken primarily to acquire new knowledge of the
underlying foundations of phenomena and observable facts
without any particular application or use in view. It analyzes
properties, structures or relationships with a view to
formulating and testing hypothesis, theories or laws. The results
of basic research are not generally sold but are usually
published in scientific journals or circulars to interested
colleagues.
(ii) Applied research shall refer to an original investigation

undertaken in order to acquire new knowledge. It is directed
primarily towards a specific practical aim or objective. It is
undertaken either to determine possible uses for the findings of
basic research or to determine new methods or ways of
achieving some specific and predetermined objectives. It
involves the consideration of the available knowledge and its
extension in order to solve particular problems. Applied
research develops ideas into operational form.
(iii) Scientific research will be regarded as carried on for public

interest if the results of such research are made available to the
public on a non-discriminatory basis; or if such research is
performed for the Government of the Philippines or any of its
agencies or political subdivisions; or if such research is directed
to benefit the public.
(h) "Character building and youth and sports development (or athletic)
purposes" shall refer to and include conducting basic and applied research on
youth development, initiating and establishing youth organizations to promote and
develop youth activities, including the establishment of summer camps or centers
for leadership training, conducting a program on physical fitness and amateur
sports development for the country; developing and maintaining recreational
facilities, playgrounds and sports centers; and conducting training programs for the
development of youth and athletes for national and international competitions. cdll
(i) "Cultural activity" shall refer to and include undertaking and/or

assisting in research activities on all aspects of history, social system, customs and
traditions; developing, enriching and preserving Filipino arts and culture;
developing and promoting the visual and performing arts; and participating in
vigorous implementation of bilingual policy through translation and wider use of
technical, scientific and creative publications, development of an adaptive
technical dictionary and use of Filipino as the medium of instruction.
(j) "Educational activity" shall refer to and include the granting of

scholarships to deserving students and professional chairs for the enhancement of
professional courses, and instructing or training of individuals either through
formal and informal methods, viz:
(i) Formal method of instruction refers to the institutionalized,

chronologically graded and hierarchically structured
educational system at all levels of education;
(ii) Non-formal method of instruction refers to any deliberately

organized, systematic educational activity carried on outside the
framework of the formal system to provide selected types of
learning to particular subgroups of the population, particularly
out-of-school youths and adults, for the purpose of
communicating ideas, developing skills, changing attitudes or
modifying behavior or improve their character and to provide
them with tools necessary for the achievement of a higher
standard of living. For the purpose of this section, a
certification from the Technical Education and Skills
Development Authority (TESDA) is required for the
accreditation of the non-formal educational program which is
implemented or carried out by a non-stock, non-profit
corporation, organization or an NGO.
It also includes upgrading of existing facilities to support the conduct of the

above activities.
(k) "Rehabilitation of veterans" shall include services extended to

Philippine veterans and members of their families because of financial difficulties
and attendant problems; and services extended to disabled veterans towards
productive life.
(l) "Social welfare purposes" shall refer to and include
(i) undertaking and/or assisting in the amelioration of the living

conditions of distressed citizens particularly those who are
handicapped by reasons of poverty, youth, physical and mental
disability, illness, old age, and natural disasters, including
assistance to cultural minorities;
(ii) pursuing a program for the protection and development of

children and youth, such as providing services for drop-outs,
pre-school children of low-income working mothers, and
physically handicapped children;
(iii) providing for the rehabilitation of the youth and disabled adults,
released prisoners, drug addicts, alcoholics, mentally retarded,
hansenites and similar cases; and
(iv) providing for services to squatter families and to displaced

workers.
(m) "Health purposes" shall refer to include the pursuit of any of the
following:
(i) control, prevention and treatment of communicable and

degenerative diseases, accidents and other health disabilities;
(ii) family planning program designed to indicate knowledge and

understanding of population, human growth and development of
family life;
(iii) environment sanitation, such as, public sewerage system and

sanitary toilets; and
(iv) nutrition, which aims to reduce the prevalence of malnutrition

and increase the energy and protein intake among households.
prcd
SECTION 2. Accreditation of non-stock, non-profit

corporations/NGOs by the Accrediting Entity.
a) The Accrediting Entity shall examine, evaluate and accredit non-stock,
non-profit corporations and NGOs as a pre-requisite for their registration with the
BIR as qualified-donee institutions under Section 34 (H)(1) and (2)(c) of the Tax
Code.
(b) Newly-organized and existing non-stock, non-profit corporations and

NGOs shall apply with the Accrediting Entity for accreditation and submit to a
process of examination and evaluation. The application for accreditation shall be
accompanied by the following documents:
(i) Articles of Incorporation and By-laws;

(ii) Certificate of Registration with the Securities and Exchange
Commission;
(iii) Affidavit of Modus Operandi showing:
1. the character of the organization;

2. the purpose for which it is organized;
3. the lists of projects/activities for the past two (2) years,
or list of proposed projects/activities for the first two (2)
years of operations for newly-organized non-stock,
non-profit corporations/NGOs;
4. the source of income and the utilization thereof, or target
fund sources for newly-organized non-stock, non-profit
corporations/NGOs; and
5. other facts relating to their operations which are relevant
to their qualification as donee institutions;
(iv) Duly audited financial statements for the past two (2) years
showing the assets, liabilities, receipts and disbursements of
existing organizations, or financial projections for the first two
(2) years for newly-organized non-stock, non-profit
corporations/NGOs. prLL
(c) The Accrediting Entity shall evaluate and accredit non-stock,

non-profit corporations/NGOs using the following major criteria:
(i) Mission and Goals
The mission and goals of the non-stock, non-profit corporation/NGO

should justify its existence. Statements of mission and goals shall serve as
guideposts for its planning and operations and a framework for
decision-making.
(ii) Resources
The criterion focuses on the adequacy of the resources and the
effectiveness of the structure and systems of the non-stock, non-profit
corporation/NGO. Areas that should be evaluated under this criterion
include the organization structure, human, financial and physical resources.
Evaluation shall take into account the names, positions and qualifications of
the individuals or committee members who manage and make decisions for
the non-stock, non-profit corporation/NGO, its sources of funds and
distribution of financial resources, and the following exhibits at the time of
examination, among others:
1. Minutes of the Board meetings

2. Table of organization;
3. Policy Manual, if any;
4. Personnel Manual, if any;
5. Budget for the past two (2) years, or proposed projects
for the first two (2) years of operations for
newly-organized non-stock, non-profit
corporations/NGOs; and
6. Audited financial statements for the past two years for
existing non-stock, non-profit corporations/NGOs.
(iii) Program Implementation and Evaluation
The non-stock, non-profit corporation/NGO must demonstrate that it

is effectively using its resources to accomplish the purposes for which it
was created. There should be clearly defined policies, priorities and
guidelines for implementing the various programs and projects. Evaluation
shall consider programs and projects implemented within the last two years;
description of how its programs/projects/services are managed; how the
following procedures are carried out; record keeping, monitoring,
evaluating and contingency planning; programs/projects vis-a-vis the needs
and priorities of its beneficiaries; the present documentation or results of
evaluation and provisions for adequate training, people participation,
development of leaders and eventual self-sufficiency.
(iv) Planning for the Future
The non-stock, non-profit corporation/NGO must provide evidence

that it has the capability to plan, implement and monitor its programs and
projects. Evaluation shall provide evidence that the non-profit
corporation/NGO has mechanisms for planning, implementing and
monitoring its programs and projects and for ensuring the continuity of
programs/projects even when external funding has ceased. Evaluation shall
also rely on the presentation of the following exhibits at the time of visit:
1. Organizational plan
2. Monitoring and evaluation tools
(d) The Secretary of Finance, upon the recommendation of the Board of

Trustees of the Accrediting Entity can waive the submission of duly audited
financial statements for newly-organized non-stock, non-profit corporations/NGOs
which have been organized to carry out programs of national significance, e.g.
foundation to build the National Museum. They shall be eligible to apply for a
three (3)-year probationary accreditation and registration as qualified donee
institutions with the Accrediting Entity.
(e) Existing non-stock, non-profit corporations/NGOs which have

qualified as donee institutions under BIR-NEDA Regulations 1-81, as amended
, shall have three (3) years beginning the effectivity of these rules and
regulations within which to secure a Certificate of Accreditation from the
Accrediting Entity. Failure by the said non-stock, non-profit corporations/NGOs to
secure accreditation within the three-year period shall be a ground for the
cancellation by the BIR of their Certificates of Registration as qualified-donee
institutions: Provided, however, That donations and contributions to the said
non-stock, non-profit corporations/NGOs during the three-year period shall still be
allowed as deductible expense on the part of the donors subject to the provisions
of Sec. 4 of these Regulations: Provided, further, That after the three-year period,
only donations and contributions to non-stock, non-profit corporations/NGOs
which have been accredited under these Regulations, shall be allowed as
deductible expense on the part of the donors. LLpr
(f) The Accrediting Entity shall issue a Certificate of Accreditation to a

non-stock, non-profit corporation/NGO upon determination that it meets the
criteria for accreditation; Provided, that the Certificate of Accreditation shall be
valid for a maximum period of five (5) years for existing non-stock, non-profit
corporations/NGOs and three (3) years for newly-organized non-stock, non-profit
corporations/NGOs.
(g) The Accrediting Entity shall deny the applications of any non-stock,
non-profit corporation/NGO which does not meet the criteria for accreditation.
The Private Accrediting Entity shall notify the non-stock, non-profit
corporation/NGO of the denial of the application, the reasons therefor, and the
evaluators' recommendation in order that the non-stock, non-profit
corporation/NGO may meet the criteria for accreditation. A non-stock, non-profit
corporation/NGO whose application for accreditation has been denied by the
Private Accrediting Entity shall have one (1) year within which to implement the
evaluator's recommendations. After the one-year implementation period, the
non-stock, non-profit corporation/NGO may re-apply for accreditation.
(h) The Secretary of Finance and the Commissioner of Internal Revenue

shall oversee, monitor and coordinate with the Accrediting Entity to ensure that the
provisions of these Regulations are complied with.
SECTION 3. Donations to Accredited Non-stock, Non-profit

Corporations/NGOs. Donations to accredited non-stock, non-profit
corporations/NGOs shall be entitled to the following benefits:
(1) Limited Deductibility. Donations, contributions or gifts

actually paid or made within the taxable year to accredited
non-stock, non-profit corporations shall be allowed limited
deductibility in an amount not in excess of ten percent (10%)
for an individual donor, and five percent (5%) for a corporate
donor, of the donor's income derived from trade, business or
profession as computed without the benefit of this deduction.
(2) Full Deductibility. Donations, contributions or gifts actually

paid or made within the taxable year to accredited NGOs shall
be allowed full deductibility, subject to the following
conditions:
(i) The accredited NGO shall make utilization directly for

the active conduct of the activities constituting the
purpose or function for which it is organized and
operated, not later than the fifteenth (15th) day of the
third month after the close of the accredited NGOs
taxable year in which contributions are received, unless
an extended period is granted by the Secretary of
Finance, upon recommendation of the Commissioner.
For this purpose, the term "utilization" shall have the

meaning as defined under Sec. 1(c) of these Regulations.
(ii) The level of administrative expenses of the accredited

NGO, shall, on an annual basis, not exceed thirty percent
(30%) of the total expenses for the taxable year;
(iii) In the event of dissolution, the assets of the accredited

NGO, would be distributed to another accredited NGO
organized for similar purpose or purposes, or to the State
for public purpose, or purposes, or to the state for public
purpose, or would be distributed by a competent court of
justice to another accredited NGO to be used in such
manner as in the judgment of said court shall best
accomplish the general purpose for which the dissolved
organization was organized. llcd
(iv) The amount of any charitable contribution of property

other than money shall be based on the acquisition cost
of said property
(v) All the members of the Board of Trustees of the

non-stock, non-profit corporation, organization or NGO
do not receive compensation or remuneration for their
service to the aforementioned organization.
(3) Exemption from Donor's Tax Donations and gifts made in

favor of accredited non-stock, non-profit corporations/NGOs
shall be exempt from donor's tax: Provided, however, That not
more than thirty percent (30%) of the said donations and gifts
for the taxable year shall be used by such accredited non-stock,
non-profit corporations/NGOs institutions qualified-donee
institution for administration purposes pursuant to the
provisions of Section 101 (A)(3) and (B)(2) of the Tax Code
.
SECTION 4. Utilization Requirements. Amounts set aside or to be

set aside for a specific project must have the prior approval of the Commissioner in
writing: Provided, however, That a certification issued by the Accrediting Entity
that the accredited NGO's specific project is one which can be better accomplished
by setting aside the funds, shall be sufficient basis for the Commissioner to grant
his/her approval.
The application for the Commissioner's prior approval must contain the
following:
(a) the nature and purpose of the specific project and the amount
programmed therefor;
(b) a detailed description of the project, including estimated costs,

sources of any future funds expected to be used for completion
of the project, and the location or locations (general or specific)
of any physical facility to be acquired or constructed as part of
the project; and
(c) a statement by an authorized official of the organization that the
amount to be set aside will actually be disbursed for the specific
project within five (5) years from the date of approval by the
Commissioner, unless the nature of the project is such that the
five-year period is impracticable.
Amounts set aside shall be evidenced by book entries and documents

showing evidence of deposits or investments, including of the funds so set aside,
or other documents that the Commissioner may require. llcd
SECTION 5. Certificate of Donations. All accredited non-stock,

non-profit corporation/NGO are required to issue a certificate of donation in such
form as prescribed by the BIR, on every donation or gift they receive. Such
certificate shall be accomplished by the said accredited non-stock, non-profit
corporation/NGO in triplicate and distributed within thirty (30) days after the
receipt of the donation, as follows:
(a) Original copy - Donor
(b) Duplicate copy - BIR
(c) Triplicate copy - Donee
SECTION 6. Notice of Donations. The donor, on the other hand,

should give a notice for every donation worth over One Million pesos
(P1,000,000) to the Revenue District Officer where his place of business is located
within thirty (30) days after the receipt of the Certificate of Donation attaching to
the said notice the copy of the Certificate of Donation issued to him by the
accredited non-stock, non-profit corporation/NGO.
SECTION 7. Date and Place of Filing Returns.
(a) Time of Filing. Claims for limited or full deductibility of donations

and contributions by the donors shall be filed by the donors at the time of filing
their income tax returns.
On the other hand, the accredited non-stock, non-profit corporation/NGO

shall file its annual information return not later than the fifteenth (15th) day of the
fourth month after the close of its taxable year in order to maintain its status as an
accredited non-stock, non-profit corporation/NGO.
(b) Place of Filing. The income tax return and/or the annual
information return of the donor or of the accredited non-stock, non-profit
corporation/NGO shall be filed in the Revenue District Office where the place of
business of the donor or the donee, as the case may be, is located.
SECTION 8. Substantiation Requirements.
(a) For Donors. Donors claiming donations and contributions to

accredited non-stock, non-profit corporation/NGO as deductions from their taxable
business income should submit evidences or proofs to the BIR by showing the
Certificate/s of Donation and indicating therein the following:
(i) Actual receipt by the accredited non-stock, non-profit

corporation/NGO of the donation or contribution and the date
of receipt thereof; and
(ii) The amount of the charitable donation or contribution, if in

cash; if property, whether real or personal, the acquisition cost
of the said property.
On the other hand, donors claiming exemption from donor's tax on their
donations and contributions to accredited non-stock, non-profit
corporations/NGOs should submit evidences or proofs showing the amount of
donation, if in cash; if real property, the zonal value thereof at the time of
donation; and if personal property, the acquisition cost thereof, but if said personal
property had already been used at the time of donation, the depreciated or book
value thereof.
(b) For Accredited Non-stock, Non-profit Corporations/NGOs.

Accredited non-stock, non-profit corporations/NGOs shall, upon filing their
income tax returns/annual information returns, furnish the Revenue District Officer
of the place where the said accredited non-stock, non-profit corporation/NGO is
located, the following:
(i) A list of the donations and income received during the year,
showing the name and address of the donors; the sources of
income; the amount or market value of each donation and items
of income and the disposition thereof;
(ii) A list of the activities and/or projects undertaken by the

institution and the cost of each undertaking indicating in
particular where and how the donations has been utilized.
(iii) A list of projects, their corresponding costs; the amount "set

aside" and the status of funds balances at the end of the year;
(iv) A declaration that the utilization requirements under Section

2(c) and 8 of these Regulations have been sufficiently complied
with;
(v) A declaration that no part of the net income of the accredited
non-stock, non-profit corporation/NGO inures to the benefit of
any private stockholder or individual; and
(vi) A declaration of the status of project implementation.
SECTION 9. Monitoring and Verification of Annual Information

Return. Pursuant to the last paragraph of Section 235 of the Tax Code , any
provision of existing general or special law to the contrary notwithstanding, the
books of accounts and other pertinent records, as well as the operations, of
accredited non-stock, non-profit corporations/NGOs may be examined by the BIR
annually for purposes of ascertaining compliance with the conditions under which
they have been granted tax exemptions or tax incentives, and their tax liability, if
any. Compliance by the accredited non-stock, non-profit corporation/NGO with
the conditions set forth in the grant of incentives under Sec. 4 of these Regulations
shall be strictly monitored to ascertain whether or not they have met the
requirements for maintaining the status as an accredited qualified-donee
institution. cdasia
SECTION 10. Prohibited Transactions. any accredited non-stock,

non-profit corporation/NGO enjoying the benefits provided for under Sec. 4 of
these Regulations is prohibited from undertaking any of the following transactions:
(a) Lending any part of its income or property without adequate

security and/or a reasonable rate of interest unless the
institution has a formal micro-credit or micro-finance program
as approved by their Board of Trustees;
(b) Purchasing any security and/or property for more than an

adequate consideration in money or money's worth;
(c) Selling any part of the security or other property for less than
adequate consideration in money or money's worth;
(d) Diverting its income or transferring its property by way of lease

or sale to any member of its Board of Trustees, founder/s or
principal officers or any member of their families or to any
corporation controlled directly or indirectly by the aforesaid
individuals or their families in accordance with the attribution
of stock ownership under Section 73 (A) and (B) of the Tax
Code ;
(e) Using any part of its property, income or seed capital for any
purpose other than that for which the corporation was created or
organized; or
(f) Engaging in any activity which is contrary to law, public order

or public policy.
SECTION 11. Withdrawal of Certificate of Accreditation and

Revocation of the Certificate of Registration.
(a) The Accrediting Entity shall have the authority to withdraw the
Certificate of Accreditation which it issued to a non-stock, non-profit
corporation/NGO upon a determination that the latter no longer meets the criteria
for accreditation under Sec. 2 (c) of these Regulations. The Private Accrediting
Entity concerned shall inform the Legal Service of the National Office or the
concerned division of the Regional Offices of the withdrawal of the Certificate of
Accreditation and recommend to the BIR the revocation of the Certificate of
Registration of the non-stock, non-profit corporation/NGO concerned.
(b) The Accrediting Entity which issued the Certificate of Accreditation

shall report to the Legal Service of the National Office or to the concerned division
of the Regional Offices any violation of any provision of these Regulations by the
accredited non-stock, non-profit corporation/NGO. Violation of any provision of
these Regulations shall constitute a ground for the withdrawal by the Private
Accrediting Entity concerned of the Certificate of Accreditation and the revocation
by the BIR of the Certificate of Registration.
(c) Any donor found to have participated in or consented to the violation

of these Regulations shall be deprived of the benefits provided under Sec. 4 of
these Regulations implementing Sections 34 (H)(1), (2)(c) and 101(A)(3), (B)(2)
of the Tax Code. Thus, the limited or full deductibility of donations and
contributions shall be disallowed and the corresponding donor's tax due on the
donation, including statutory increments or penalties thereto provided in the Tax
Code, shall be assessed and collected. The said penalties shall be in addition to any
administrative or criminal penalty provided for by law or regulations.
SECTION 12. Repealing Clause. All internal revenue issuances,

rules and regulations, or parts thereof, which are contrary to or inconsistent with
these Regulations are hereby repealed, amended or modified accordingly.
SECTION 13. Effectivity. These Regulations shall take effect fifteen

(15) days after publication in the Official Gazette or any newspaper of general
circulation in the Philippines. cdtai
(SGD.) EDGARDO B. ESPIRITU

Secretary
Department of Finance
Recommending Approval:
(SGD.) BEETHOVEN L. RUALO

Commissioner
(3)
August 14, 1998
SUBJECT : Amending Sec. 2.57.2 of Revenue Regulations No. 2-98
SECTION 1. Scope. Pursuant to the provisions of Section 244, in

relation to Section 57 (B) of the National Internal Revenue Code of 1997 ,
these regulations are hereby promulgated in order to streamline and make more
efficient the collection of the creditable withholding tax on income payments to
medical practitioners. prcd
SECTION 2. Amendment. Section 2.57.2, Sub-section (I) of

Revenue Regulations No. 2-98 , is hereby amended to read as follows:
"Sec. 2.57.2. Income payments subject to creditable

withholding tax and rates prescribed thereon. Except as herein otherwise
provided, there shall be withheld a creditable income tax at the rates herein
specified for each class of payee from the following items of income
payments to persons residing in the Philippines:
"xxx xxx xxx
"(I) Professional fees paid to medical practitioners Any

amount collected for and paid to medical practitioners by hospitals and clinics
or paid by patients to the medical practitioners through the hospital or clinic
Ten Percent (10%).
"(a) It shall be the duty and responsibility of the hospital or clinic to

collect from any patient admitted by such hospital or clinic, the professional
fee of the attending medical practitioner and to withhold the tax herein
prescribed. It is the intent of these Regulations that the hospital or clinic shall,
at all times, collect the professional fee for and in behalf of the medical
practitioner and to withhold therefrom the tax herein prescribed.
"(i) In general. It shall be presumed that the

hospital or clinic has collected the professional fee of the
said medical practitioner and shall, accordingly, be liable for
the withholding of the tax vis-a-vis each and every patient
admitted into the hospital or clinic under the care of the said
medical practitioner.
"(ii) Exception. The withholding tax herein

prescribed shall not apply whenever there is proof that no
professional fee has in fact been charged by the medical
practitioner and paid by his patient, Provided, however, that
this fact is shown in a sworn declaration (ANNEX A hereof)
jointly executed by the medical practitioner, the patient or
his duly authorized representative, and the administrator of
the hospital or clinic. This sworn declaration shall form part
of the records of the hospital or clinic and shall constitute as
part of its records and shall be made readily available to any
duly authorized Revenue Officer for tax audit purpose,
Provided, further, that the said administrator of the hospital
or clinic shall inform the Revenue District Office having
jurisdiction over such hospital or clinic about any medical
practitioner who fails or refuses to execute the sworn
statement herein prescribed, within ten (10) days from the
occurrence of such event. cda
"(b) The rules herein prescribed shall likewise apply to rendering of

medical services by medical practitioners through a duly registered
professional partnership for the practice of the medical profession provided,
however, that the rate of the withholding tax to be imposed shall be at five
percent (5%), pursuant to the provisions of Sub-section (B) of this Section
."
SECTION 3. Repealing Clause. All rules and regulations or any
part thereof inconsistent with the provisions of these Regulations are hereby
amended or repealed accordingly.

(15) days after publication in the official gazette or in a newspaper of general
circulation. cdll

Secretary

Commissioner
ANNEX A
SWORN DECLARATION
Date _________________
WE, ____________________________________ (name of patient/authorized

representative); ___________________________ (name of Medical Practitioner); and
_______________________ (name of hospital/clinic administrator), do hereby certify that
the said patient was admitted to ____________________ (name of hospital/clinic) for the
period ________________ under the care of the said Medical Practitioner for medical
care treatment and that the said Medical Practitioner did not charge from the said patient
any professional fee. cdasia
WE DECLARE UNDER THE PENALTIES OF PERJURY THAT THIS

CERTIFICATE HAS BEEN MADE IN GOOD FAITH, VERIFIED BY US, AND TO
THE BEST OF OUR KNOWLEDGE AND BELIEF, IS TRUE AND CORRECT,
PURSUANT TO THE PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND THE REGULATIONS ISSUED UNDER AUTHORITY
THEREOF.
_____________________ _____________________
Name of Patient Name of Medical Practitioner
_______________________
Name of Hospital/Clinic
Administrator
(4)
1998
SUBJECT : Amending Further Revenue Regulations No. 5-98,

Implementing Section 21 of Republic Act No. 8479 entitled
"An Act Deregulating the Downstream Oil Industry, and
For Other Purposes"
Pursuant to the provisions of Section 244, in relation to Sec. 245, both of

the National Internal Revenue Code of 1997, these Regulations are hereby
promulgated to implement the provisions of Section 21 and 23, Chapter VII of
Republic Act No. 8479, concerning payment by certain Oil Companies of their
respective specific taxes through "Reimbursement Certificates" to be issued by the
Department of Energy (DOE). cdasia
SECTION 1. Section 3(a) of Rev. Regs. 5-98, is hereby amended by

deleting a portion thereof to read as follows:
"SEC. 3(a) The "Reimbursement Certificate" has been duly issued
by the Department of Energy."

(15) days after publication in a newspaper of general circulation in the Philippines.
prLL

Secretary

Commissioner
(5)
August 25, 1998
SUBJECT : Implementing the Provisions of the National Internal

Revenue Code, As Amended By Republic Act No. 8424,
Relative to the Imposition of Income Taxes on Income
Derived Under the Foreign Currency Deposit and Offshore
Banking Systems
SCOPE Pursuant to Section 244, in relation to Sections 24, 25, 27 and

28 of the National Internal Revenue Code of 1997, as amended by R.A. No. 8424,
these Regulations are hereby promulgated to govern the imposition of income
taxes on income derived under the Foreign Currency Deposit and Offshore
Banking Systems. cdphil
SECTION 2.22. Definition of Terms.
(A) Foreign Currency Deposit System shall refer to the conduct of

banking transactions whereby any person whether natural or juridical may deposit
foreign currencies forming part of the Philippine international reserves, in
accordance with the provisions of Republic Act No. 6426 entitled "An Act
Instituting a Foreign Currency Deposit System in the Philippines, and For Other
Purposes."
(B) Foreign Currency Deposit Unit (FCDU) shall refer to that unit of a
local bank or of a local branch of a foreign bank authorized by the Bangko Sentral
Ng Pilipinas (BSP) to engage in foreign currency-denominated transactions,
pursuant to the provisions of R.A. 6426, as amended. ("Local bank" shall refer to a
thrift bank or a commercial bank organized under the laws of the Republic of the
Philippines. "Local branch of a foreign bank" shall refer to a branch of a foreign
bank doing business in the Philippines, pursuant to the provisions of R.A. No. 337
, as amended).
(C) Offshore Banking System shall refer to the conduct of banking

transactions in foreign currencies involving the receipt of funds principally from
external and internal sources and the utilization of such fund pursuant to
Presidential Decree No. 1034 as implemented by CB (now BSP) Circular No.
1389, as amended.
(D) Offshore Banking Unit (OBU) shall mean a branch, subsidiary or

affiliate of a foreign banking corporation which is duly authorized by the Bangko
Sentral Ng Pilipinas (BSP) to transact offshore banking business in the Philippines
in accordance with the provisions of Presidential Decree No. 1034 as implemented
by CB (now BSP) Circular No. 1389, as amended.
(E) Deposits shall mean funds in foreign currencies which are accepted
and held by an Offshore Banking Unit or Foreign Currency Deposit Unit in the
regular course of business, with the obligation to return an equivalent amount to
the owner thereof, with or without interest.
(F) Resident shall mean
(1) an individual citizen of the Philippines residing therein; or
(2) an individual who is not a citizen of the Philippines but is
permanently residing therein; or
(3) a corporation or other juridical person organized under the laws

of the Philippines; or
(4) a branch, subsidiary, affiliate, extension office or other unit of

corporations or juridical persons organized under the laws of
any foreign country operating in the Philippines.
(G) "Non-resident" shall mean an individual, corporation or other

juridical person not included in the above definition of "resident". prcd
(H) Filipino Overseas Contract Worker (OCW) means an individual

citizen of the Philippines referred to under Section 23(C) of the Code.
A Filipino Seaman is a citizen of the Philippines who receives

compensation for services rendered abroad as a member of the complement of an
ocean-going vessel engaged exclusively in international trade as referred to under
Section 23(C) of the Code.
SECTION 2.24. Income Tax Rate of Interest Income from Foreign

Currency Deposit.
(A) Individual Income Tax on Interest Income from a Depository Bank

under the Foreign Currency Deposit System
(1) Interest income which is actually or constructively received by a

resident citizen of the Philippines or by a resident alien individual from a foreign
currency bank deposit shall be subject to a final withholding tax of seven and
one-half percent (7.5%). The depository bank shall withhold and remit the tax
pursuant to Sections 57 and 58 (withholding tax at source) of the Code.
(2) If a bank account is jointly in the name of a non-resident citizen such

as an overseas contract worker, or a Filipino seaman, and his spouse or dependent
who is a resident in the Philippines, fifty percent (50%) of the interest income
from such bank deposit shall be treated as exempt while the other fifty percent
(50%) shall be subject to a final withholding tax of seven and one-half percent
(7.5%). cdll
(B) Compliance and Administrative Procedures for Non-Resident Citizen

and Non-Resident Alien. The tax on interest income from foreign currency deposit
shall be imposed unless the depositor who is a non-resident citizen or a
non-resident alien can present documentary evidence that he is not a resident of
the Philippines. Such evidence shall consist of the original or certified copy of any
of the following:
(1) an immigration visa issued by the foreign government in the

country where he is a resident of; or
(2) a certificate of residency which is issued by the Philippine

Embassy or Consulate in the foreign country of his residence;
or
(3) a certificate of the contract of employment of an overseas

contract worker which is duly registered with the Philippine
Overseas Employment Agency (POEA); or a Seaman's
Certificate, in the case of a Filipino seaman; or
(4) a certification from the Bureau of Immigration of the

Philippines that a non-resident alien is not a resident of the
Philippines; or
(5) a certification from the Department of Foreign Affairs (DFA) of

the Philippines that the individual is a regular member of the
diplomatic corps of a foreign government and is entitled to
income tax exemption under an international agreement to
which the Philippines is a signatory.
(C) Name of the Foreign Currency Bank Account To be entitled to an

exemption from the tax on interest income on foreign currency deposit, the
Foreign Currency Bank Account shall be in the name of the non-resident
individual or non-resident corporation. Otherwise, the interest income therefrom
shall be considered as subject to the tax imposed herein.
(D) Illustration.
Mr. Juan de la Cruz, a Filipino citizen who is residing in the Philippines has
a US dollar account with ABC Bank. His gross interest earnings from his bank
deposit for the first quarter of 1998 (i.e. from January 1 to March 31, 1998)
amounted to US$1,000.00. This gross interest earning shall be considered as
constructively received by Mr. De la Cruz during the first quarter of 1998 and
shall be subject to a seven and one-half percent (7.5%) final withholding tax. The
7.5% final withholding tax which is due thereon is US$75.00.
SECTION 2.27 and SECTION 2.28 Corporate Income Tax on Interest

Income from a Depository Bank under the Foreign Currency Deposit System.
(A) Interest income which is actually or constructively received by a

domestic corporation or a resident foreign corporation from a foreign currency
bank deposit shall be subject to a final withholding tax at the rate of seven and
one-half percent (7.5%) based on the gross amount of such interest income. The
depository bank shall withhold and remit the tax pursuant to the provisions of
Sections 57 and 58 (withholding tax at source) of the Code.
(B) Compliance and Administrative Procedures for a Non-resident

Corporation. The tax on interest income from foreign currency deposit shall be
imposed unless the depositor, which is a non-resident corporation, can present
documentary evidence that it is not a resident of the Philippines. Such evidence
shall consist of the original or certified copy of all the following requirements:
(1) Certificate of registration of the corporation abroad; and
(2) Certification from the Securities and Exchange Commission

(SEC) that the non-resident corporation is not licensed to do
business in the Philippines. Cdpr
(C) Taxation of Income of an FCDU or OBU from Foreign Currency

Transactions. In general, income derived by an FCDU or an OBU from foreign
currency transactions with residents of the Philippines, including local commercial
banks, local branches of foreign banks, and other depository banks under the
foreign currency deposit system, shall be subject to a final withholding tax of ten
percent (10%) based on gross income pursuant to Sec. 27(D)(3) and Sec. 28(A)(4)
of the Code. Income from foreign currency transactions shall include interest
income from lending operations, including bank charges, commissions, service
fees, and net foreign exchange transaction gains.
Income from foreign currency transactions with non-residents of the

Philippines shall not be subject to income tax.
The person making the income payment shall withhold and remit the tax
withheld pursuant to the provisions of Sections 57 and 58 of the Code. Thus, in the
case of interest payment by a resident of the Philippines on a foreign currency loan
from an OBU or an FCDU, the withholding agent shall be the said resident.
(D) Taxation of Other Incomes of an FCDU or an OBU . Income derived

by an FCDU or an OBU from activities other than foreign currency transactions
shall be subject to the pertinent income tax/taxes prescribed under Section 27 or
Section 28 of the Code. To illustrate: Income derived by an FCDU from
consultancy services and rentals shall be subject to an income tax based on net
income at the tax rates prescribed under Section 27(A) of the Code. Capital gains
derived from the sale, barter, exchange or disposition of shares of stocks in a
domestic corporation shall be subject to tax prescribed under Section 27(D) of the
Code.
The aforesaid depository bank shall file its corporate income tax return for
income referred to in the preceding paragraph in accordance with the provisions of
Section 52 of the Code. It shall also declare thereunder all other incomes derived
during the taxable period which are subject to the final withholding taxes, the fact
that such final withholding taxes have been withheld therefrom by the payor
notwithstanding, indicating the following information:
(a) Name of the withholding agent;

(b) His/its address;
(c) His/its Taxpayer Identification Number (TIN);
(d) Period covered;
(e) Gross Income;
(f) Rate of final withholding tax applied; and
(g) Amount of final withholding tax withheld.
The submission of the foregoing information shall not be required with

respect to its interest income derived from bank deposits. LLphil
SECTION 2.58. Information Requirement for Depositors/Taxpayers

Exempt from Withholding Tax on Interest Income from Foreign Currency
Deposits.
The Depository Bank shall submit with its quarterly withholding tax
remittance prescribed under Sec. 58(A) of the Code a list of all persons and
corporations who were given exemption from the tax on interest income on foreign
currency deposits.
To avail of the exemption from the tax on interest income from foreign
currency deposit, the depositor is required to execute a written permission
allowing its depository bank to inform the Commissioner of Internal Revenue that
as a non-resident, the depositor is exempt from the tax. A depositor who fails to
comply with this requirement, which constitutes a limited waiver of the
confidentiality of foreign currency deposits, shall not be entitled to the exemption
privilege.
EFFECTIVITY CLAUSE. These Regulations shall apply on taxable income

derived beginning January 1, 1998 pursuant to the provisions of Section 8 of RA
8424. In case of deposits which were made in 1997, only that portion of interest
which was actually or constructively received by a depositor starting January 1,
1998 is taxable.
TRANSITORY PROVISION. No penalty shall be imposed for late payment

of the tax herein prescribed for the first three quarters of calendar year 1998,
provided, however, that the taxpayer's corresponding tax returns for the said
taxable quarters are filed and the taxes due are paid not later than October 25,
1998. cda

Secretary

Commissioner
(6)
August 25, 1998

the National Internal Revenue Code, as Amended" Relative
to the Imposition of the Minimum Corporate Income Tax
(MCIT) on Domestic Corporations and Resident Foreign
Corporations
Pursuant to Section 244, in relation to Section 27(E) and Section

28(A)(2) , these Regulations are hereby promulgated to govern the imposition
of the minimum corporate income tax on domestic and resident foreign
corporations. Cdpr
Sec. 2.27(E) MINIMUM CORPORATE INCOME TAX (MCIT) ON
DOMESTIC CORPORATIONS
(1) Imposition of the Tax A minimum corporate income tax (MCIT) of

two percent (2%) of the gross income as of the end of the taxable year (whether
calendar or fiscal year, depending on the accounting period employed) is hereby
imposed upon any domestic corporation beginning the fourth (4th) taxable year
immediately following the taxable year in which such corporation commenced its
business operations. The MCIT shall be imposed whenever such corporation has
zero or negative taxable income or whenever the amount of minimum-corporate
income tax is greater than the normal income tax due from such corporation.
For purposes of these Regulations, the term, "normal income tax" means the
income tax rates prescribed under Sec. 27(A) and Sec. 28(A)(1) of the
Code at 34% on January 1, 1998; 33% effective January 1, 1999; and at 32%
effective January 1, 2000 and thereafter.
In the case of a domestic corporation whose operations or activities are

partly covered by the regular income tax system and partly covered under a special
income tax system, the MCIT shall apply on operations covered by the regular
income tax system. For example, if a BOI-registered enterprise has a "registered"
and an "unregistered" activity, the MCIT shall apply to the unregistered activity.
(2) Carry forward of excess minimum corporate income tax Any

excess of the minimum corporate income tax (MCIT) over the normal income tax
as computed under Sec. 27(A) of the Code shall be carried forward on an annual
basis and credited against the normal income tax for the three (3) immediately
succeeding taxable years. LLphil
Illustration on how to carry forward excess minimum corporate income tax

Excess of MCIT
Normal Income Over the Normal
Year Tax MCIT Income Tax
1998 P50,000 P75,000 P25,000

1998 amount of tax payable P75,000
1999 P60,000 P100,000 P40,000
1999 amount of tax payable P100,000
2000 P100,000 P60,000
Computation of Net Amount of Tax Payable in 2000:
Amount of tax payable P100,000
Less:
1998 excess MCIT (25,000)
1999 excess MCIT (40,000) P65,000
Net amount of tax payable P35,000
The taxpayer shall pay the MCIT whenever it is greater than the regular or
normal corporate income tax which is imposed under Sec. 27(A) of the Code. The
comparison between the normal income tax payable by the corporation and the
MCIT shall be made at the end of the taxable year. Thus, under the example, the
taxpayer will pay the MCIT of P75,000.00 since this amount is greater than the
normal income tax of P50,000.00 in 1998.
In 1999, the firm will also pay the MCIT since the MCIT of P100,000.00 is
greater than the normal income tax of P60,000.00.
In the year 2000, where the normal or regular corporate income tax of
P100,000.00 is greater than the MCIT of P60,000.00, the firm will pay the normal
income tax.
The corporation can credit the excess of its MCIT over the normal income
tax for 1998 (i.e. P25,000) and 1999 (i.e. P40,000), or a total amount of P65,000
from the amount of normal income tax which is payable by the firm in the year
2000. Thus, the amount of income tax payable by the firm is P35,000 after
deducting P65,000 from P100,000.
The excess MCIT is creditable against the normal income tax within the
next three (3) years from payment thereof. Thus, in the illustration above where
the corporation had an excess MCIT of P25,000 over its normal income tax in
1998, the P25,000 can be claimed as a tax credit against the normal income tax up
to the year 2001 and only when the normal income tax is greater than the MCIT.
The excess MCIT cannot be claimed as a credit against the MCIT itself or against
any other losses.
(3) Relief from the Minimum Corporate Income Tax under Certain
Conditions The Secretary of Finance, upon recommendation of the
Commissioner, may suspend imposition of the MCIT upon submission of proof by
the applicant-corporation, duly verified by the Commissioner's authorized
representative, that the corporation sustained substantial losses on account of a
prolonged labor dispute or because of "force majeure" or because of legitimate
business reverses.
(4) Definition of Terms
(a) "Gross Income" defined For purposes of the minimum corporate
income tax prescribed under this Subsection, the term "gross income" means gross
sales less sales returns, discounts and allowances and cost of goods sold. "Gross
sales" shall include only sales contributory to income taxable under Sec. 27(A) of
the Code. "Cost of goods sold" shall include all business expenses directly
incurred to produce the merchandise to bring them to their present location and
use.
Passive incomes which have been subject to a final tax at source shall not
form part of gross income for purposes of the minimum corporate income tax.
For a trading or merchandising concern, "cost of goods sold" means the

invoice cost of the goods sold, plus import duties, freight in transporting the goods
to the place where the goods are actually sold, including insurance while the goods
are in transit. cdtai
For a manufacturing concern, "cost of goods manufactured and sold" means

all costs of production of finished goods, such as raw materials used, direct labor
and manufacturing overhead, freight cost, insurance premiums and other costs
incurred to bring the raw materials to the factory or warehouse.
In the case of sales of services, the term "gross income" means gross
receipts less sales returns, allowances, discounts and cost of services. "Cost of
services" means all direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (a) salaries and employee
benefits of personnel, consultants and specialists directly rendering the service,
and (b) cost of facilities directly utilized in providing the service such as
depreciation or rental of equipment used and cost of supplies: Provided, however,
that "cost of services" shall not include interest expense except in the case of banks
and other financial institutions. The term "gross receipts" as used herein means
amounts actually or constructively received during the taxable year; Provided, that
for taxpayers employing the accrual basis of accounting, the term "gross receipts"
shall mean amounts earned as gross income.
(b) The term "substantial losses from a prolonged labor dispute" means
losses arising from a strike staged by the employees which lasted for more than six
(6) months within a taxable period and which has caused the temporary shutdown
of business operations.
(c) The term "force majeure" means a cause due to an irresistible force as
by "Act of God" like lightning, earthquake, storm, flood and the like. This term
shall also include armed conflicts like war or insurgency.
(d) The term "legitimate business reverses" shall include substantial losses
sustained due to fire, robbery, theft or embezzlement, or for other economic reason
as determined by the Secretary of Finance.
(5) Specific Rules for Determining the Period When a Corporation

Becomes Subject to the MCIT
For purposes of the MCIT, the taxable year in which business operations
commenced shall be the year in which the domestic corporation registered with the
Bureau of Internal Revenue (BIR).
Firms which were registered with BIR in 1994 and earlier years shall be
covered by the MCIT beginning January 1, 1998.
Firms which were registered with BIR in any month in 1998 shall be
covered by the MCIT three calendar years thereafter (i.e. after the lapse of three
calendar years from 1998). For example, a firm which was registered in May 1998
shall be covered by the MCIT in 2002.
The reckoning point for firms using the fiscal year shall also be 1998. For
example, a firm which registered with the BIR on July 1, 1998 shall be subject to
an MCIT on his gross income earned for the entire fiscal year ending in the year
2002.
Transitory Rule for determining the MCIT for 1998 on firms which are
taxable on a fiscal year basis. For firms using the fiscal year basis and whose first
taxable period under the minimum corporate income tax covers month/months in
1997 (i.e. prior to the imposition of MCIT under RA 8424), the MCIT which is
due for 1998 shall be computed using an apportionment formula. The ratio to be
applied is the number of months in 1998 to twelve (12) months (i.e. the total
number of months in a fiscal year). cda
Illustration. Firm A registered with the BIR in July 1994. It becomes

subject to the MCIT in 1998. Since it is using a fiscal year as basis of its taxable
period, a part of the tax base for the MCIT was earned by the corporation in 1997
prior to the imposition of the MCIT (i.e. gross income from July to December
1997). The MCIT which is due from the firm is computed using the gross income
of the firm for 1998 (January to June) which is computed on an apportionment
basis as follows:
Gross income of the firm for the entire fiscal year
Multiply: 0.50 (i.e. ratio of 6 months in 1998 to 12 months covering FY 97-98)
Equals: Tax base of the MCIT for 1998
Multiply: 2% (i.e. MCIT tax rate)
Equals: MCIT for 1998.
(6) Manner of filing and payment The minimum corporate income tax
(MCIT) shall be paid on a taxable year basis. It shall be covered by a tax return
designed for the purpose which will be submitted together with the corporation's
annual final adjustment income tax return. Domestic corporations shall not be
required to pay the minimum corporate income tax on a quarterly basis, the
provisions of Sec. 75 of the Code notwithstanding.
(7) Accounting treatment of the excess minimum corporate income tax

paid Any amount paid as excess minimum corporate income tax shall be
recorded in the corporation's books as an asset under account title "deferred
charges-minimum corporate income tax". This asset account shall be carried
forward and may be credited against the normal income tax due for a period not
exceeding three (3) taxable years immediately succeeding the taxable year/s in
which the same has been paid. Any amount of the excess minimum corporate
income tax which has not or cannot be so credited against the normal income taxes
due for the 3-year reglementary period shall lose its creditability. Such amount
shall be removed and deducted from "deferred charges-minimum corporate income
tax" account by a debit entry to "retained earnings" account and a credit entry to
"deferred charges-minimum corporate income tax" account since this tax is not
allowable as deduction from gross income it being an income tax. dctai
Illustration on the accounting treatment of the excess minimum corporate

income tax paid Assume that ABC Corporation commenced business
operations in calendar year 1991. It is already more than four (4) years in
operation as of calendar year 1998 hence, subject to the minimum corporate
income tax beginning taxable year 1998. Assume, further, that its income taxes
during the years from 1998 to year 2005 are as follows:
EXCESS OF
MCIT OVER
NORMAL INCOME NORMAL
YEAR TAX MCIT INCOME TAX
1998 P25,000 P100,000 P75,000

1999 130,000 150,000 20,000
2000 200,000 190,000 -
2001 - 300,000 300,000
2002 10,000 50,000 40,000
2003 15,000 60,000 45,000
2004 8,000 40,000 32,000
2005 1,000 50,000 49,000
In this case, ABC Corporation shall not be allowed to carry forward and
credit the 1998 excess MCIT against the income tax liability for 1999 since the
1999 MCIT is greater than the normal income tax for said year. However, for year
2000, where the normal income tax is greater than the computed MCIT, ABC
Corporation shall be allowed to apply the excess MCIT of 1998 and 1999
amounting to P95,000 (P75,000 plus P20,000) against the normal income tax
liability of P200,000.
The excess MCIT for the year 2001 (P300,000) may only be credited
against normal income tax liabilities for the succeeding three years from 2002 to
2004. However, since the normal income tax liabilities for these succeeding years
are lesser than the respective MCITs, the excess MCIT for the year 2001 of
P300,000 loses its creditability by the year 2005 hence, must be removed and
deducted from "Deferred charges-MCIT" account and charged to "Retained
Earnings" account. cdll
Illustrative accounting entries to record excess MCIT
(a) For taxable year 1998 when MCIT is greater than the normal income
tax liability of the company
1998
(1) Debit: Provision for income tax P25,000

Credit: Income tax payable P25,000
To record income tax liability using the normal income tax rate
(2) Debit: Deferred Charges-MCIT P75,000

Credit: Income Tax Payable P75,000
To record excess MCIT (P100,000 - P25,000)
(3) Debit: Income Tax Payable P100,000

Credit: Cash in bank P100,000
To record payment of income tax due for 1998
(b) For taxable year 2000 when excess MCIT (1998 and 1999) is applied
against normal income tax liability
2000
(1) Debit: Provision for income tax P200,000

Credit: Income Tax Payable P200,000
To record income tax liability using the normal income tax rate
(2) Debit: Income tax payable P95,000
Credit: Deferred Charges-MCIT
(P75,000 plus P20,000) P95,000
To record application of excess MCIT against normal income tax liability for
taxable year 2000
(3) Debit: Income Tax Payable P105,000

Credit: Cash in Bank P105,000
To record payment of income tax due (P200,000 less P95,000)
(c) For taxable year 2005 when the expired portion of excess MCIT
(P300,000) for taxable year 2001 is closed to the retained earnings account due to
its non-application.
2005
Debit: Retained Earnings P300,000

Credit: Deferred Charges-MCIT P300,000
To record the expired portion of Deferred Charges-MCIT
(8) Exceptions The minimum corporate income tax (MCIT) shall apply
only to domestic corporations subject to the normal corporate income tax
prescribed under these Regulations. Accordingly, the minimum corporate income
tax shall not be imposed upon any of the following:
(a) Domestic corporations operating as proprietary educational

institutions subject to tax at ten percent (10%) on their taxable
income; or
(b) Domestic corporations engaged in hospital operations which are

nonprofit subject to tax at ten percent (10%) on their taxable
income; and
(c) Domestic corporations engaged in business as depository banks

under the expanded foreign currency deposit system, otherwise
known as Foreign Currency Deposit Units (FCDUs), on their
income from foreign currency transactions with local
commercial banks, including branches of foreign banks,
authorized by the Bangko Sentral ng Pilipinas (BSP) to transact
business with foreign currency deposit system units and other
depository banks under the foreign currency deposit system,
including their interest income from foreign currency loans
granted to residents of the Philippines under the expanded
foreign currency deposit system, subject to final income tax at
ten percent (10%) of such income.
(d) Firms that are taxed under a special income tax regime such as
those in accordance with RA 7916 and 7227 (the PEZA law and
the Bases Conversion Development Act, respectively).
Sec. 2.28(A)(2) MINIMUM CORPORATE INCOME TAX (MCIT) ON

RESIDENT FOREIGN CORPORATION A minimum corporate income tax of
two percent (2%) of the gross income from sources within the Philippines is
hereby imposed upon any resident foreign corporation, beginning on the fourth
(4th) taxable year (whether calendar or fiscal year, depending on the accounting
period employed) immediately following the taxable year in which the corporation
commenced its business operations, whenever the amount of the minimum
corporate income tax is greater than the normal income tax due for such year.
In computing for the minimum corporate income tax due from a resident
foreign corporation, the rules prescribed under Sec. 2.27(E) of these Regulations
shall apply: Provided, however, that only the gross income from sources within the
Philippines shall be considered for such purposes.
Exceptions The minimum corporate income tax shall only apply to

resident foreign corporations which are subject to normal income tax. Accordingly,
the minimum corporate income tax shall not apply to the following resident
foreign corporations:
(a) Resident foreign corporations engaged in business as

"international carrier" subject to tax at two and one-half percent
(2 %) of their "Gross Philippine Billings";
(b) Resident foreign corporations engaged in business as Offshore

Banking Units (OBUs) on their income from foreign currency
transactions with local commercial banks, including branches of
foreign banks, authorized by the Bangko Sentral ng Pilipinas
(BSP) to transact business with Offshore Banking Units
(OBUs), including interest income from foreign currency loans
granted to residents of the Philippines, subject to a final income
tax at ten percent (10%) of such income; and
(c) Resident foreign corporations engaged in business as regional

operating headquarters subject to tax at ten percent (10%) of
their taxable income.
(d) Firms that are taxed under a special income tax regime such as
those in accordance with RA 7916 and 7227 (the
PEZA law and the Bases Conversion Development Act,
respectively). cda
EFFECTIVITY CLAUSE. These Regulations shall apply to domestic and

resident foreign corporations on their aforementioned taxable income derived
beginning January 1, 1998 pursuant to the pertinent provisions of RA 8424,
provided, however, that corporations using the fiscal year accounting period and
which are subject to MCIT on income derived pertaining to any month or months
of the year 1998 shall not be imposed with penalties for late payment of the tax.

Secretary

Commissioner
August 25, 1998
SUBJECT : Revenue Regulations Amending Pertinent Portions of

Revenue Regulations Nos. 11-96 and 2-98 Relative to the
Tax Treatment on the Sale, Transfer or Exchange of Real
Property and for this Purpose Revising the Time and Place
of Payment of the Capital Gains Tax Due Thereon
SECTION 1. Scope. Pursuant to Section 244 of the Tax Code

of 1997, in relation to Sections 24(D)(1) and 27(D)(5) of the same Code , these
Regulations are hereby promulgated amending pertinent portions of Revenue
Regulations Nos. 11-96 and 2-98 and other relevant regulations and
issuances regarding the tax treatment on the sale, transfer or exchange of real
property and amending for this purpose the date and venue for the filing of capital
gains tax returns and payment of taxes due on transactions involving real
properties classified as capital assets and likewise amending the venue for the
filing and payment of creditable withholding tax due on transactions involving real
properties classified as ordinary assets. cdasia
SECTION 2. Final Tax on Sales, Exchanges or Transfers of Real

Properties Classified as Capital Assets. The rate of six percent (6%) shall be
imposed on capital gains presumed to have been realized by the seller from the
sale, exchange or other disposition of real properties located in the Philippines,
classified as capital assets, including pacto de retro sales and other forms of
conditional sales based on the gross selling price or fair market value as
determined in accordance with Section 6(E) of the Code (i.e., the authority of
the Commissioner to prescribe the real property values), whichever is higher.
In case of disposition of real property made by individuals to the

government or to any of its political subdivisions or agencies or to
government-owned or -controlled-corporations, the tax to be imposed shall be
determined either under the normal income tax rate imposed in Section 24(A)
or under a final capital gains tax of six percent (6%) imposed under Section
24(D)(1) , both of the Tax Code of 1997, at the option of the taxpayer.
SECTION 3. Time and Place of Payment of Capital Gains Tax.

Within thirty (30) days following each sale or disposition, the Capital Gains Tax
Return shall be filed by the seller and payment made to an Authorized Agent
Bank (AAB) located within the Revenue District Office (RDO) having jurisdiction
over the place where the property being transferred is located. Cdpr
SECTION 4. Creditable Withholding Tax on the Sale, Transfer or

Exchange of Real Property Classified as Ordinary Asset . A creditable
withholding tax based on the gross selling price/total amount of consideration or
the fair market value determined in accordance with Section 6(E) of the Code,
whichever is higher, paid to the seller/owner for the sale, transfer or exchange of
real property, other than capital asset, shall be imposed upon the withholding
agent/buyer, in accordance with the following schedule:
A. Upon the following values of real property, where the
seller/transferor is habitually engaged in the real estate
business as per proof of registration with the HLURB
or HUDCC:
With a selling price of Five hundred thousand

pesos (P500,000.00) or less 1.5%
With a selling price of more than Five hundred

thousand pesos (P500,000.00) but not more
than Two million pesos (P2,000,000.00) 3.0%
With a selling price of more than Two million

pesos (P2,000,000.00) 5.0%
B. Where the seller/transferor is not habitually

engaged in the real estate business 7.5%
C. Where the seller/transferor is exempt from creditable

withholding tax in accordance with Section 2.57.5
of Revenue Regulations No. 2-98 Exempt
SECTION 5. Time and Place of Payment of Creditable Withholding

Tax . Creditable withholding taxes deducted and withheld by the
withholding agent/buyer on the sale, transfer or exchange of real property
classified as ordinary asset, shall be paid by the withholding agent/buyer upon
filing of the return with the Authorized Agent Bank (AAB) located within the
Revenue District Office (RDO) having jurisdiction over the place where the
property being transferred is located within ten (10) days following the end of the
month in which the transaction occurred. Provided, however, that taxes withheld in
December shall be filed on or before January 25 of the following year.
SECTION 6. Tax Clearance Certificate. Upon presentation of

the Capital Gains Tax Return or Creditable Withholding Tax Return with a bank
validation evidencing full payment of the capital gains tax or the creditable
withholding tax due on the sale, transfer, barter, exchange or other disposition of
real property classified as capital or ordinary asset, as the case may be, the
Revenue District Officer (RDO) of the revenue district where the property being
transferred is located shall issue the corresponding Tax Clearance (TCL) or
Certificate Authorizing Registration (CAR) for the registration of the real property
in favor of the transferee.
SECTION 7. Repealing Clause. The provisions of any revenue

regulations, revenue memorandum order, revenue memorandum circular or any
other issuance of the Bureau of Internal Revenue inconsistent with these
Regulations are hereby repealed, amended, or modified accordingly. cdll
SECTION 8. Effectivity Clause. These Regulations shall take effect

fifteen (15) days after publication in any newspaper of general circulation.

Secretary

Commissioner
(7)
July 9, 1998
SUBJECT : Implementing Section 230 of the National Internal

Revenue Code, As Amended by Republic Act No. 8242,
Relative to the Revalidation of Tax Credit Certificates
Pursuant to Section 244, in relation to Section 230 of the National

Internal Revenue Code of 1997, these Regulations are hereby promulgated to
govern the treatment of cash refunds and of Tax Credits. Cdpr
SECTION 1. Forfeiture of Cash Refund. A refund check or warrant
issued in accordance with the pertinent provisions of the Code, which shall remain
unclaimed or uncashed within five (5) years from the date the said warrant or
check was mailed or delivered, shall be forfeited in favor of the Government, and
the amount thereof shall revert to the General Fund.
SECTION 2. Forfeiture of Tax Credit. A Tax Credit Certificate

issued in accordance with the pertinent provisions of the Code, which shall remain
unutilized after five (5) years from the date of issue shall, unless revalidated, be
considered invalid and shall not be allowed as payment for internal revenue tax
liabilities of the taxpayer, and the amount covered by the Certificate shall revert to
the General Fund. cdphil
SECTION 3. Revalidation. A Tax Credit Certificate issued by the

Commissioner or his duly authorized representative prior to January 1, 1998,
which remains unutilized or has a creditable balance as of said date, shall be
presented for revalidation with the Commissioner or his authorized representative,
on or before August 31, 1998. For this purpose, the taxpayer shall file a written
application for revalidation with the Chief of the Appellate Division, Bureau of
Internal Revenue, and shall surrender the original copy of the unutilized Tax
Credit Certificate, or the Tax Credit Certificate which has a creditable balance, for
verification and cancellation. The Appellate Division shall then prepare a
Memorandum for approval or disapproval by the Commissioner. The revalidation
is done by issuing a new Tax Credit Certificate reflecting the unutilized amount or
the creditable balance of the Tax Credit Certificate that is to be revalidated.
SECTION 4. Repealing Clause. All rules and regulations or parts

thereof inconsistent with the provisions of these regulations are hereby amended
accordingly.
SECTION 5. Effectivity. These regulations shall take effect

immediately. prLL
EDGARDO B. ESPIRITU
Secretary
BEETHOVEN L. RUALO
Commissioner
July 13, 1998
SUBJECT : Amending Section 2 of Revenue Regulations No. 4-97

Relative to the Acceptable Modes of Payment of Internal
Revenue Taxes
TO : All Internal Revenue Officers, Authorized Agent Banks and

Their Subsidiaries, and Others Concerned
Pursuant to the provisions of Section 244 , in relation to Sections 56

, 58, 81, 103, 114, 130 and 200 all of the National
Internal Revenue Code of 1997, these Regulations are hereby promulgated in order
to allow the payment of internal revenue taxes by check. cdasia
SECTION 1. Scope. Section 2 of Revenue Regulations No. 4-97

relative to the modes of payment of internal revenue taxes is hereby amended in
order to facilitate payment of taxes with the Bureau of Internal Revenue by
providing for the recognition of checks as one of the acceptable modes of payment
thereof.
SECTION 2. Amendment. Section 2 of Revenue Regulations No.

4-97 is hereby amended to read as follows:
"SEC. 2. Modes of Payment. To ensure that tax payments are

made only to authorized collection agents of the BIR, properly credited to
the accounts of the taxpayer concerned, and duly remitted to the government,
any person liable to any internal revenue tax shall pay the same only through
any of the following modes: (a) over-the-counter cash transaction; or (b)
bank debit system; or (c) a credit facility with a bank, a credit company or
similar institution; or (d) personal or company check or cashier's or
manager's check. Cdpr
In connection with the bank debit system or credit facility with a

bank, a credit company or similar institution, the taxpayer shall open/maintain
a bank account with any Authorized Agent Bank (AAB) of the BIR where
he/it intends to file his/its tax return/form/declaration and pay his/its tax
liabilities, subject to such rules prescribed by the accredited banks."

thereof inconsistent with the provisions of these Regulations are hereby amended
accordingly. LLpr
SECTION 4. Effectivity. These Regulations shall take effect

immediately.
EDGARDO B. ESPIRITU
Secretary
BEETHOVEN L. RUALO
Commissioner
(8)
June 9, 1998
SUBJECT : Implementing Section 21 of Republic Act No. 8479 Entitled
"An Act Deregulating the Downstream Oil Industry, and
For Other Purposes"
Pursuant to the provisions of Section 244, in relation to Section 245 of the

National Internal Revenue Code, these Regulations are hereby promulgated to
implement the provisions of Sections 21 and 23, Chapter VII of Republic Act No.
8479, concerning payment by certain Oil Companies of their respective
specific taxes through "Reimbursement Certificates" to be issued by the
Department of Energy (DOE). cdasia
SECTION 1. Scope. Sections 21 and 23, Chapter VII of Republic

Act No. 8479, approved on February 10, 1998, provides:
"SEC. 21. OPSF Balance. All outstanding claims against OPSF

as of the effectivity of this Act, subject to the existing auditing rules and
regulations of the Commission on Audit (COA), shall be considered as
accounts payable of the National Government. For this purpose, and any law
to the contrary notwithstanding, the reimbursement certificates issued by the
DOE covering the said outstanding claims shall be honored and accepted by
the Bureau of Customs and the Bureau of Internal Revenue as payment to the
extent of ten percent (10%) per payment of the tariff duties and specific taxes
due from the creditor-claimants against the OPSF until such claims are settled
in full: Provided, That the reimbursement certificates shall not be
transferable."
"SEC. 23. Implementing Rules and Regulations. The DOE, in

coordination with the Board, the DENR, DFA, Department of Labor and
Employment (DOLE), Department of Health (DOH), DOF, DTI, National
Economic and Development Authority (NEDA) and TLRC, shall formulate
and issue the necessary implementing rules and regulations within sixty (60)
days after the effectivity of this Act."
SECTION 2. Definition of Terms. For purposes to this Regulations,

the following words and phrases shall have the meaning indicated below:
a) OPSF Refers to the Oil Price Stabilization Fund established

under Presidential Decree No. 1956, as amended, in order
to stabilize the domestic prices of petroleum products under the
regulated oil industry environment.
(b) DOE Refers to the Department of Energy.
(c) COA Refers to the Commission on Audit.
(d) Reimbursement Certificate Refers to an accountable form

issued by DOE to reimburse qualified oil companies for the
additional cost of crude oil and imported petroleum products
due to increase in world crude oil prices and fluctuations in
foreign exchange rates which may be used to pay specific taxes
due the government. cda
(e) Reimbursement Certificate Debit Memo Refers to an

accountable form issued by DOE authorizing the BIR to utilize
Reimbursement Certificate in payment of specific taxes.
(f) Tax Debit Memo Refers to an accountable form issued to a

taxpayer by the BIR as a written notice that his tax liability has
been charged against his Reimbursement Certificate and serves
as a form of payment when presented to a duly accredited agent
bank or duly deputized collection agent.
(g) Oil Company Refers to a company which purchases crude

oil and other petroleum products and is authorized to draw
claims against the OPSF.
(h) Collection Agency Refers to either the Bureau of Internal

Revenue or the Bureau of Customs which collects specific taxes
or customs duties and to which the Reimbursement Certificates
shall be presented in payment of such taxes and duties.
SECTION 3. Reimbursement Certificate. The "Reimbursement

Certificate" duly issued by the Department of Energy in settlement of the
outstanding claims of the concerned Oil Companies against the OPSF, pursuant to
Section 21, Chapter VII of Republic Act No. 8479, may be used in payment of the
Oil Company's liability for specific taxes, subject to the following rules:
(a) The "Reimbursement Certificate" has been duly issued by the

Department of Energy and duly approved by the Commission
on Audit.
(b) The Certificate may be accepted by the Bureau of Internal

Revenue only in payment of specific taxes on the Oil
Company's local production and removal of petroleum products
subject to specific taxes pursuant to Section 148 of the
National Internal Revenue Code, as amended by Republic Act
No. 8424, and a Reimbursement Certificate Debit Memo has
been issued therefor by the DOE prior to the actual utilization.
In no case may such Reimbursement Certificate be used in
payment of the Oil Company's other tax liabilities.
(c) Utilization of each Reimbursement Certificate shall be made

with only one collection agency. In case a Certificate has been
partially utilized in payment of excise tax with the BIR or duty
with BOC, the subsequent application(s) for payment of
unutilized balance thereof shall be accepted only by the
collection agency where the said certificate has been initially
applied.
(d) Payment by an Oil Company's specific taxes through the

aforesaid "Reimbursement Certificate" shall be treated as
indirect or a constructive collection of tax money; hence, shall
be credited to the account of the Bureau of Internal Revenue as
actual collection of tax revenues. dctai
(e) Payment by an Oil Company of its liability for specific taxes

through the aforesaid "Reimbursement Certificate" shall not
exceed an amount equivalent to ten percent (10%), per
payment, based on the amount of the specific tax due on its
removal from place of production of such petroleum products.
(f) The concerned Oil Company shall secure from the Large
Taxpayers Division (LTD), BIR National Office, or the
concerned Revenue District Office which has jurisdiction over
its principal place of business an Authority To Accept Payment
for Excise Tax (ATAPET) for the total amount of specific tax
due inclusive of the amount to be paid through the
aforementioned "Reimbursement Certificate."
(g) The Oil Company concerned shall present to the Collection

Programs Division, BIR National Office, the (1) original copies
of its "Reimbursement Certificate" duly approved by COA and
the "Reimbursement Certificate Debit Memo" duly issued by
DOE; and (2) all copies of the ATAPET duly issued by LTD or
its Home RDO, wherever applicable, for processing, leading to
issuance by the Collection Programs Division of the
corresponding Tax Debit Memo (TDM) evidencing application
of the amount shown in the said "Reimbursement Certificate" in
payment of the said Oil Company's liability for specific tax as
shown in the aforesaid ATAPET.
(h) The "Reimbursement Certificate" herein provided shall not be
transferable by the Oil Company in whose name the same has
been duly issued by the DOE.
SECTION 4. Report on Utilization of Reimbursement Certificates.

The Commissioner of Internal Revenue shall submit to the Bureau of Treasury a
monthly utilization report of Reimbursement Certificates duly applied against
specific tax liabilities of oil companies on or before the 5th day of the month
immediately following the month of utilization. This report shall serve as the basis
of the Bureau of Treasury in recognizing BIR's actual excise tax collections from
this mode of payment. Cdpr
SECTION 5. Transitory Provision. For a more effective

implementation and monitoring of the utilization of Reimbursement Certificates in
payment of specific taxes, DOE shall provide the Commissioner of Internal
Revenue a duly certified list of Reimbursement Certificates issued to oil
companies as of the effectivity of these Regulations containing, among others, the
following information:
(a) Name, TIN, and address of the oil company;
(b) Reimbursement Certificate Number;
(c) Date of Issue of Certificate; and
(d) Amount of Authorized OPSF Reimbursement reflected in the

certificate.
The said list shall be submitted in duplicate to the Commissioner of Internal

Revenue not later than July 15, 1998. Thereafter, the Secretary of Energy shall
provide the Commissioner of Internal Revenue a list of all Reimbursement
Certificates that will be subsequently issued after the effectivity of these
Regulations.
SECTION 6. Repealing Clause. All existing rulings, orders,

circulars, or any other issuance or portion thereof which is inconsistent with the
provisions of these Regulations are hereby amended, revoked or modified
accordingly.
SECTION 7. Effectivity Clause. These Regulations shall take effect

fifteen (15) days after its publication in any newspaper of general circulation. cdphil
SALVADOR M. ENRIQUEZ, JR.

Secretary
LIWAYWAY VINZONS-CHATO
Commissioner
(9)
February 5, 1998
SUBJECT : Rules and Regulations to Implement the Provision Under

Article X of RA 6734 on the Proportionate Share
of the Autonomous Region in Muslim Mindanao (ARMM)
in the National Collections from Businesses Operating in
the Region
TO : The Regional Treasurers, All BIR Collecting Officers,

Branch Managers of Authorized Government Depository
Banks (AGDBs) and Auditors of the COA in the ARMM
and Others Concerned
SECTION 1. Purpose.
Pursuant to the provision of Section 245 of the National Internal

Revenue Code (NIRC) in relation to Section 3 of RA 6734, these regulations
are hereby promulgated to implement the remittance of the proportionate share
provided for under Section 5 of the said Act, to the provinces comprising the
ARMM namely: Sulu, Tawi-Tawi, Lanao del Sur (except Marawi City) and
Maguindanao (except Cotabato City). Cdpr
SECTION 2. Policies.
1. Pursuant to paragraph 1 of ARMM Executive Order (EO) No. 3

dated March 5, 1992 as amended by EO No. 9 dated July 17,
1992, the BIR and other National Collecting Officers shall be
responsible for the remittance of the 30% share of the province
where the revenues were generated through the Provincial
Treasurer and the 30% share of the Regional Government
through the Regional Treasurer (RT) in the national collections
of the ARMM. Likewise BIR and other BIR national collecting
officers shall also be responsible for the remittance of the 40%
NG share to the BTR thru the nearest AGDB Branch.
2. For the purpose of these regulations, internal revenue tax

payments shall only be made thru Authorized Collection Agents
(CA). Hence, the provisions of RR No. 5-84 and RR No.
4-97 relative to payment thru banks shall not apply.
SECTION 3. Definition of Terms.
1. National Collection refers to collections in the ARMM of

internal revenue taxes, fees and charges and taxes imposed on
natural resources.
2. ARMM share refers to the following:
a) 30% share of the province or city; and
b) 30% share of the Regional Government
3. National Government share refers to the 40% share of the

national government in all the national collections in the
ARMM.
4. Deposit slip refers to the form used in remitting the 40%

National Government (NG) share and the 60% ARMM share in
the national collections of the ARMM thru AGDB for credit to
the account of the NG and the RT-ARMM respectively.
5. FE (Fiscal Examiner) refers to the representative of the

Bureau of the Treasury (BTR) in the ARMM charged with the
primary function of examining the books of accounts and other
financial records of the collecting offices of BIR and other
concerned agencies of the ARMM.
SECTION 4. Responsibilities.
1. The BIR Collection Agent in the ARMM shall:
a. Open a suspense account "Due to the NG/ARMM" to

account for check remittance.
b. Remit his collections to the nearest AGDB branch in

accordance with COA/DOF Joint Circular No. 1-81
dated January 1, 1981. cdphil
c. Prepare the following in remitting his collections.
c.1 For the 60% ARMM share:
c.1.1 For cash remittance Prepare 6 copies of

deposit slips for the 60% share to be
credited to the account of the RT-ARMM,
to be distributed as follows:
Original -
AGDB Branch
Duplicate -
Regional Treasurer
Triplicate FE -
Quadruplicate -
BIR collection agent/other
concerned NCO for
submission to the
concerned Chief, Finance
Division, Revenue Region/
Chief Accountant
Quintuplicate - BIR collection agent/other
concerned NCO's file
Sixtuplicate - BIR collection agent/other
concerned NCO for
submission to the BIR/
other concerned NCO
Regional Auditor
c.1.2 For check remittance Prepare 6 copies

of deposit slips for distribution in the same
manner as in c.1.1 for credit to the account
due to RT-ARMM indicating therein the
number of check, payee and the amount of
check. The check shall be endorsed by the
BIR Collection Agent on the reverse side
of the check with the words "For deposit to
the account of the Regional RT-ARMM".
c.2 For the 40% National Government share:
c.2.1 For Cash Remittance:
Prepare 7 copies of deposit slips for the

40% share to be credited to the account of
the NG/ARMM to be distributed as
follows:
Original - to be retained by the

AGDB Branch for
submission to BTR-
Remittance Processing
Division (RPD) thru Head
Office AGDB
Duplicate - to be retained by the
AGDB Branch for its file
Triplicate - to be retained by the
AGDB Branch for
submission to FE
Quadruplicate - BIR collection agent/other
concerned NCO for
submission to the
concerned Chief, Finance
Division, Revenue Region/
Chief Accountant
Quintuplicate - BIR collection agent/other
concerned NCOs file
Sixtuplicate - BIR collection agent/other
concerned NCO for
submission to Regional
Treasurer-ARMM
Septuplicate - BIR collection agent/other
concerned NCO for
submission to the BIR/
other concerned NCO
Regional Auditor
c.2.2 For check remittance:
Prepare 7 copies of deposit slip for

distribution in the same manner as in c.2.1
above for the 40% share to be credited to
the account of NG/ARMM indicating
therein the number of check, payee and the
amount of check. The check shall be
endorsed by the BIR collection agent/other
NCO concerned on the reverse side of the
check with the words "For deposit to the
account of the NG/ARMM". cda
d. Adjust his books in case of dishonored checks and

collect the amount from the taxpayer/payor concerned. If
cash is collected in payment of dishonored check, the
amount shall be deposited with the AGDB branch in
accordance with item no. c.1.1 for the 60% ARMM
share and c.2.1 for the 40% NG share. If another check
is issued to replace the dishonored check, the new check
shall be deposited in accordance with c.1.2. for the
ARMM share and c.2.2 for the NG share.
2. The Regional Treasurer ARMM and the Provincial

Treasurer shall:
a. Open an account with AGDB within the provinces

comprising the ARMM
b. Inform the BIR of the name of the AGDB branch where

the ARMM opens an account
3. The AGDB Branch shall:
a. Validate manually or with a validating machine, if

available, the deposit slips by indicating therein the date,
amount and validation number of the remittances. An
Official Receipt shall be issued to the BIR Collection
Agent for each set of deposit slip.
b. Immediately (1) credit the cash remittance to the account

of the Regional Treasurer-ARMM the sixty percent
(60%) share of the ARMM and (2) transfer to the AGDB
HO the forty percent (40%) share of the NG thru the
Ticket Exchange Center (TEC). The AGDB Branch shall
indicate in the TEC advice that the amount be credited to
the demand deposit Account-ARMM of the BTR
maintained in the AGDB HO. The AGDB branch shall
furnish the FE a copy of the TEC advice and the
Regional Treasurer-ARMM, a copy of the credit advice.
cdrep
c. Temporarily credit the check remittance to the suspense

account. At the end of each week, the AGDB Branch
shall transfer from the suspense account the amount
equivalent to the cleared check (1) sixty percent (60%)
for credit to the Regional Treasurer-ARMM and (2) forty
percent (40%) for transfer to the AGDB HO for credit to
the Demand Deposit Account-ARMM of the BTR. For
every transfer, the AGDB Branch shall furnish the FE a
copy of the TEC advice. The AGDB Branch shall also
furnish the Regional Treasurer-ARMM a copy of the
credit advice effecting credit to his account.
d. Debit the suspense account in case of dishonored check

and return the check to the BIR Collection Agent/other
concerned NCO. Prepare debit advice in 5 copies to be
distributed as follows:
Original - BIR collection agent/other concerned

NCO's file
Duplicate - Regional Treasurer-ARMM
Triplicate - FE
Quadruplicate - BIR collection agent/other concerned
NCO for Chief, Finance Division
Revenue Region/Chief Accountant
Quintuplicate - AGDB Branch
e. Submit monthly bank statement (MBS) and monthly list

of remittance (MLR) together with the Original RAs
reflecting all cash remittances to be distributed as
follows:
Original - to be forwarded to BTr-RPD with the

original RAs thru the AGDB Head
Office (Accounting Department)
Duplicate - to be forwarded to the AGDB Head
Office for its file
Triplicate - to be submitted to the FE concerned with
the triplicate copies of RAs
Quadruplicate - to be retained by the AGDB Branch
concerned
f. Submit statement of the account reflecting all

transactions affecting the suspense account to the
following:
f.1. Regional Treasurer ARMM
f.2. FE
4. The FE shall:
a. Keep records of all RAs, deposit slips, credit advices,

debit advices and TEC advices submitted by AGDB
branch.
b. Reconcile the monthly bank statement/statement of

account, MLR and Deposit Slips received from the
AGDB Branch with his records and the report of
collections and remittances submitted by the BIR
collection agent/other concerned NCO. cda
c. Submit to the BTr-National Cash Accounting Division

(NCAD) at the end of each month report of all
remittances made by the BIR collection agent/other
concerned NCO in the ARMM to the AGDB Branch for
credit to the BTr account.
d. Examine the books of accounts and other financial

records of the BIR collection agent/other concerned
NCO to determine the correctness of the share of NG in
the collection in the ARMM and whether such share is
actually remitted to BTr.
e. Furnish the Regional Treasurer-ARMM copy of the

Reports of Examinations. LLjur
SECTION 5. Repealing Clause. All existing rules and regulations

inconsistent herewith are hereby revoked or modified accordingly.
SECTION 6. Effectivity. This order takes effect immediately.

Secretary
Commissioner
(10)
May 21, 1998 January 1, 1998
SUBJECT : Implementing Section 33 of the National Internal Revenue

Code, as Amended by Republic Act No. 8424 Relative to
the Special Treatment of Fringe Benefits
Pursuant to Section 244, in relation to Section 33 of the National Internal

Revenue Code of 1997 , these Regulations are hereby promulgated to govern
the collection at source of the tax on fringe benefits which have been furnished,
granted or paid by the employer beginning January 1, 1998. cda
SEC. 2.33. SPECIAL TREATMENT OF FRINGE BENEFITS
(A) Imposition of Fringe Benefits Tax A final withholding tax is hereby

imposed on the grossed-up monetary value of fringe benefit furnished, granted or
paid by the employer to the employee, except rank and file employees as defined
in these Regulations, whether such employer is an individual, professional
partnership or a corporation, regardless of whether the corporation is taxable or
not, or the government and its instrumentalities except when: (1) the fringe benefit
is required by the nature of or necessary to the trade, business or profession of the
employer; or (2) when the fringe benefit is for the convenience or advantage of the
employer. The fringe benefit tax shall be imposed at the following rates:
Effective January 1, 1998 - 34%

The tax imposed under Sec. 33 of the Code shall be treated as a final
income tax on the employee which shall be withheld and paid by the employer on
a calendar quarterly basis as provided under Sec. 57 (A) (Withholding of Final Tax
on certain Incomes) and Sec. 58 A (Quarterly Returns and Payments of Taxes
Withheld) of the Code.
The grossed-up monetary value of the fringe benefit shall be determined by

dividing the monetary value of the fringe benefit by the following percentages and
in accordance with the following schedule:

The grossed-up monetary value of the fringe benefit represents the whole
amount of income realized by the employee which includes the net amount of
money or net monetary value of property which has been received plus the amount
of fringe benefit tax thereon otherwise due from the employee but paid by the
employer for and in behalf of his employee, pursuant to the provisions of this
Section.
Coverage These Regulations shall cover only those fringe benefits given
or furnished to managerial or supervisory employees and not to the rank and file.
The term, "RANK AND FILE EMPLOYEES" means all employees who
are holding neither managerial nor supervisory position. The Labor Code of the
Philippines, as amended, defines "managerial employee" as one who is vested with
powers or prerogatives to lay down and execute management policies and/or to
hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees.
"Supervisory employees" are those who, in the interest of the employer, effectively
recommend such managerial actions if the exercise of such authority is not merely
routinary or clerical in nature but requires the use of independent judgment. cdtai
Moreover, these regulations do not cover those benefits properly forming

part of compensation income subject to withholding tax on compensation in
accordance with Revenue Regulations No. 2-98.
Fringe benefits which have been paid prior to January 1, 1998 shall not be
covered by these Regulations.
Determination of the Amount Subject to the Fringe Benefit Tax In

general, the computation of the fringe benefits tax would entail (a) valuation of the
benefit granted and (b) determination of the proportion or percentage of the benefit
which is subject to the fringe benefit tax. That the Tax Code allows for the cases
where only a portion (i.e. less than 100 per cent) of the fringe benefit is subject to
the fringe benefit tax is clearly stated in Section 33 (a) of R.A. 8424 which
stipulates that fringe benefits which are "required by the nature of, or necessary to
the trade, business or profession of the employer, or when the fringe benefit is for
the convenience or advantage of the employer" are not subject to the fringe benefit
tax. Thus, in cases where the fringe benefits entail joint benefits to the employer
and employee, the portion which shall be subject to the fringe benefits tax and the
guidelines for the valuation of fringe benefits are defined under these rules and
regulations.
Unless otherwise provided in these regulations, the valuation of fringe

benefits shall be as follows:
(1) If the fringe benefit is granted in money, or is directly paid for

by the employer, then the value is the amount granted or paid
for.
(2) If the fringe benefit is granted or furnished by the employer in

property other than money and ownership is transferred to the
employee, then the value of the fringe benefit shall be equal to
the fair market value of the property as determined in
accordance with Sec. 6 (E) of the Code (Authority of the
Commissioner to Prescribe Real Property Values).
(3) If the fringe benefit is granted or furnished by the employer in

property other than money but ownership is not transferred to
the employee, the value of the fringe benefit is equal to the
depreciation value of the property.
Taxation of fringe benefit received by a non-resident alien individual who is

not engaged in trade or business in the Philippines A fringe benefit tax of
twenty-five percent (25%) shall be imposed on the grossed-up monetary value of
the fringe benefit. The said tax base shall be computed by dividing the monetary
value of the fringe benefit by seventy-five per cent (75%).
Taxation of fringe benefit received by (1) an alien individual employed by

regional or area headquarters of a multinational company or by regional
operating headquarters of a multinational company; (2) an alien individual
employed by an offshore banking unit of a foreign bank established in the
Philippines; (3) an alien individual employed by a foreign service contractor or by
a foreign service subcontractor engaged in petroleum operations in the
Philippines; and (4) any of their Filipino individual employees who are employed
and occupying the same position as those occupied or held by the alien employees.
A fringe benefit tax of fifteen per cent (15%) shall be imposed on the
grossed-up monetary value of the fringe benefit. The said tax base shall be
computed by dividing the monetary value of the fringe benefit by eighty-five per
cent (85%). cdrep
Taxation of fringe benefit received by employees in special economic zones

Fringe benefits received by employees in special economic zones, including
Clark Special Economic Zone and Subic Special Economic and Free Trade Zone,
are also covered by these regulations and subject to the normal rate of fringe
benefit tax or the special rates of 25% or 15% as provided above.
(B) Definition of Fringe Benefit In general, except as otherwise

provided under these regulations, for purposes of this Section, the term "FRINGE
BENEFIT" means any good, service, or other benefit furnished or granted by an
employer in cash or in kind, in addition to basic salaries, to an individual employee
(except rank and file employee as defined in these regulations) such as, but not
limited to the following:
(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the

employer for the employee in social and athletic clubs or other
similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums
or similar amounts in excess of what the law allows.
For this purpose, the guidelines for valuation of specific types of fringe
benefits and the determination of the monetary value of the fringe benefits are
given below. The taxable value shall be the grossed-up monetary value of the
fringe benefit.
(1) Housing privilege
(a) If the employer leases a residential property for the use

of his employee and the said property is the usual place
of residence of the employee, the value of the benefit
shall be the amount of rental paid thereon by the
employer, as evidenced by the lease contract. The
monetary value of the fringe benefit shall be fifty per
cent (50%) of the value of the benefit.
(b) If the employer owns a residential property and the same

is assigned for the use of his employee as his usual place
of residence, the annual value of the benefit shall be five
per cent (5%) of the market value of the land and
improvement, as declared in the Real Property Tax
Declaration Form, or zonal value as determined by the
Commissioner pursuant to Section 6(E) of the Code
(Authority of the Commissioner to Prescribe Real
Property Values), whichever is higher. The monetary
value of the fringe benefit shall be fifty per cent (50%)
of the value of the benefit. cda
The monetary value of the housing fringe benefit is

equivalent to the following:
MV = [5%(FMV or ZONAL VALUE] X 50%
WHERE:
MV = MONETARY VALUE
FMV = FAIR MARKET VALUE
(c) If the employer purchases a residential property on

installment basis and allows his employee to use the
same as his usual place of residence, the annual value of
the benefit shall be five per cent (5%) of the acquisition
cost, exclusive of interest. The monetary value of fringe
benefit shall be fifty per cent (50%) of the value of the
benefit.
(d) If the employer purchases a residential property and

transfers ownership thereof in the name of the employee,
the value of the benefit shall be the employer's
acquisition cost or zonal value as determined by the
Commissioner pursuant to Section 6(E) of the Code
(Authority of the Commissioner to Prescribe Real
Property Values), whichever is higher. The monetary
value of the fringe benefit shall be the entire value of the
benefit.
(e) If the employer purchases a residential property and

transfers ownership thereof to his employee for the
latter's residential use, at a price less than the employer's
acquisition cost, the value of the benefit shall be the
difference between the fair market value, as declared in
the Real Property Tax Declaration Form, or zonal value
as determined by the Commissioner pursuant to Sec.
6(E) of the Code (Authority of the Commissioner to
Prescribe Real Property Values), whichever is higher,
and the cost to the employee. The monetary value of the
fringe benefit shall be the entire value of the benefit.
(f) Housing privilege of military officials of the Armed

Forces of the Philippines (AFP) consisting of officials of
the Philippine Army, Philippine Navy and Philippine Air
Force shall not be treated as taxable fringe benefit in
accordance with the existing doctrine that the State shall
provide its soldiers with necessary quarters which are
within or accessible from the military camp so that they
can be readily on call to meet the exigencies of their
military service.
(g) A housing unit which is situated inside or adjacent to the

premises of a business or factory shall not be considered
as a taxable fringe benefit. A housing unit is considered
adjacent to the premises of the business if it is located
within the maximum of fifty (50) meters from the
perimeter of the business premises.
(h) Temporary housing for an employee who stays in a

housing unit for three (3) months or less shall not be
considered a taxable fringe benefit. cdasia
(2) Expense account
(a) In general, expenses incurred by the employee but which

are paid by his employer shall be treated as taxable
fringe benefits, except when the expenditures are duly
receipted for and in the name of the employer and the
expenditures do not partake the nature of a personal
expense attributable to the employee.
(b) Expenses paid for by the employee but reimbursed by

his employer shall be treated as taxable benefits except
only when the expenditures are duly receipted for and in
the name of the employer and the expenditures do not
partake the nature of a personal expense attributable to
the said employee.
(c) Personal expenses of the employee (like purchases of

groceries for the personal consumption of the employee
and his family members) paid for or reimbursed by the
employer to the employee shall be treated as taxable
fringe benefits of the employee whether or not the same
are duly receipted for in the name of the employer.
(d) Representation and transportation allowances which are

fixed in amounts and are regularly received by the
employees as part of their monthly compensation income
shall not be treated as taxable fringe benefits but the
same shall be considered as taxable compensation
income subject to the tax imposed under Sec. 24 of the
Code.
(3) Motor vehicle of any kind
(a) If the employer purchases the motor vehicle in the name

of the employee, the value of the benefit is the
acquisition cost thereof. The monetary value of the
fringe benefit shall be the entire value of the benefit,
regardless of whether the motor vehicle is used by the
employee partly for his personal purpose and partly for
the benefit of his employer.
(b) If the employer provides the employee with cash for the
purchase of a motor vehicle, the ownership of which is
placed in the name of the employee, the value of the
benefits shall be the amount of cash received by the
employee. The monetary value of the fringe benefit shall
be the entire value of the benefit regardless of whether
the motor vehicle is used by the employee partly for his
personal purpose and partly for the benefit of his
employer, unless the same was subjected to a
withholding tax as compensation income under Revenue
Regulations No. 2-98.
(c) If the employer purchases the car on installment basis,

the ownership of which is placed in the name of the
employee, the value of the benefit shall be the
acquisition cost exclusive of interest, divided by five (5)
years. The monetary value of the fringe benefit shall be
the entire value of the benefit regardless of whether the
motor vehicle is used by the employee partly for his
employer.
(d) If the employer shoulders a portion of the amount of the

purchase price of a motor vehicle the ownership of
which is placed in the name of the employee, the value
of the benefit shall be the amount shouldered by the
employer. The monetary value of the fringe benefit shall
be the entire value of the benefit regardless of whether
the motor vehicle is used by the employee partly for his
employer. Cdpr
(e) If the employer owns and maintains a fleet of motor

vehicles for the use of the business and the employees,
the value of the benefit shall be the acquisition cost of all
the motor vehicles not normally used for sales, freight,
delivery service and other non-personal used divided by
five (5) years. The monetary value of the fringe benefit
shall be fifty per cent (50%) of the value of the benefit.
The monetary value of the motor vehicle fringe benefit is

equivalent to the following:
MV = [(A)/5] X 50%
where:
MV = Monetary value
A = acquisition cost
(f) If the employer leases and maintains a fleet of motor

vehicles for the use of the business and the employees,
the value of the benefit shall be the amount of rental
payments for motor vehicles not normally used for sales,
freight, delivery, service and other non-personal use. The
monetary value of the fringe benefit shall be fifty per
cent (50%) of the value of the benefit.
(g) The use of aircraft (including helicopters) owned and

maintained by the employer shall be treated as business
use and not be subject to the fringe benefits tax.
(h) The use of yacht whether owned and maintained or

leased by the employer shall be treated as taxable fringe
benefit. The value of the benefit shall be measured based
on the depreciation of a yacht at an estimated useful life
of 20 years.
(4) Household expenses Expenses of the employee which are

borne by the employer for household personnel, such as salaries
of household help, personal driver of the employee, or other
similar personal expenses (like payment for homeowners
association dues, garbage dues, etc.) shall be treated as taxable
fringe benefits.
(5) Interest on loan at less than market rate
(a) If the employer lends money to his employee free of

interest or at a rate lower than twelve per cent (12%),
such interest foregone by the employer or the difference
of the interest assumed by the employee and the rate of
twelve per cent (12%) shall be treated as a taxable fringe
benefit.
(b) The benchmark interest rate of twelve per cent (12%)

shall remain in effect until revised by a subsequent
regulation.
(c) This regulation shall apply to installment payments or
loans with interest rate lower than twelve per cent (12%)
starting January 1, 1998. prcd
(6) Membership fees, dues, and other expenses borne by the

employer for his employee, in social and athletic clubs or other
similar organizations. These expenditures shall be treated as
taxable fringe benefits of the employee in full.
(7) Expenses for foreign travel
(a) Reasonable business expenses which are paid for by the

employer for the foreign travel of his employee for the
purpose of attending business meetings or conventions
shall not be treated as taxable fringe benefits. In this
instance, inland travel expenses (such as expenses for
food, beverages and local transportation) except lodging
cost in a hotel (or similar establishments) amounting to
an average of US$300.00 or less per day, shall not be
subject to a fringe benefit tax. The expenses should be
supported by documents proving the actual occurrences
of the meetings or conventions.
The cost of economy and business class airplane ticket

shall not be subject to a fringe benefit tax. However, 30
percent of the cost of first class airplane ticket shall be
subject to a fringe benefit tax.
(b) In the absence of documentary evidence showing that the

employee's travel abroad was in connection with
business meetings or conventions, the entire cost of the
ticket, including cost of hotel accommodations and other
expenses incident thereto shouldered by the employer,
shall be treated as taxable fringe benefits. The business
meetings shall be evidenced by official communications
from business associates abroad indicating the purpose
of the meetings. Business conventions shall be evidenced
by official invitations/communications from the host
organization or entity abroad. Otherwise, the entire cost
thereof shouldered by the employer shall be treated as
taxable fringe benefits of the employee.
(c) Travelling expenses which are paid by the employer for
the travel of the family members of the employee shall
be treated as taxable fringe benefits of the employee.
(8) Holiday and vacation expenses Holiday and vacation

expenses of the employee borne by his employer shall be
treated as taxable fringe benefits.
(9) Educational assistance to the employee or his dependents
(a) The cost of the educational assistance to the employee

which are borne by the employer shall, in general, be
treated as taxable fringe benefit. However, a scholarship
grant to the employee by the employer shall not be
treated as taxable fringe benefit if the education or study
involved is directly connected with the employer's trade,
business or profession, and there is a written contract
between them that the employee is under obligation to
remain in the employ of the employer for period of time
that they have mutually agreed upon. In this case, the
expenditure shall be treated as incurred for the
convenience and furtherance of the employer's trade or
business.
(b) The cost of educational assistance extended by an

employer to the dependents of an employee shall be
treated as taxable fringe benefits of the employee unless
the assistance was provided through a competitive
scheme under the scholarship program of the company.
cda

or similar amounts in excess of what the law allows The cost
of life or health insurance and other non-life insurance
premiums borne by the employer for his employee shall be
treated as taxable fringe benefit, except the following: (a)
contributions of the employer for the benefit of the employee,
pursuant to the provisions of existing law, such as under the
Social Security System (SSS), (R.A. No. 8282, as amended
) or under the Government Service Insurance System (GSIS)
(R.A. No. 8291 ), or similar contributions arising from the
provisions of any other existing law; and (b) the cost of
premiums borne by the employer for the group insurance of his
employees.
(C) Fringe Benefits Not Subject to Fringe Benefits Tax In
general, the fringe benefits tax shall not be imposed on the
following fringe benefits:
(1) Fringe benefits which are authorized and exempted from

income tax under the Code or under any special law;
(2) Contributions of the employer for the benefit of the

employee to retirement, insurance and hospitalization
benefit plans;
(3) Benefits given to the rank and file, whether granted

under a collective bargaining agreement or not;
(4) De minimis benefits as defined in these Regulations;
(5) If the grant of fringe benefits to the employee is required

by the nature of, or necessary to the trade, business or
profession of the employer; or
(6) If the grant of the fringe benefit is for the convenience of

the employer.
The exemption of any fringe benefit from the fringe benefit tax
imposed under this Section shall not be interpreted to mean
exemption from any other income tax imposed under the Code
except if the same is likewise expressly exempt from any other
income tax imposed under the Code or under any other existing
law. Thus, if the fringe benefit is exempted from the fringe
benefits tax, the same may, however, still form part of the
employee's gross compensation income which is subject to
income tax, hence, likewise subject to a withholding tax on
compensation income payment.
The term "DE MINIMIS" benefits which are exempt from the
fringe benefit tax shall, in general, be limited to facilities or
privileges furnished or offered by an employer to his employees
that are of relatively small value and are offered or furnished by
the employer merely as a means of promoting the health,
goodwill, contentment, or efficiency of his employees such as
the following:
(1) Monetized unused vacation leave credits of employees

not exceeding ten (10) days during the year ;
(2) Medical cash allowance to dependents of employees not
exceeding P750 per semester or P125 per month ;
(3) Rice subsidy of P350 per month granted by an employer

to his employees ;
(4) Uniforms given to employees by the employer ;
(5) Medical benefits given to the employees by the employer

;
(6) Laundry allowance of P150 per month ;
(7) Employee achievement awards, e.g. for length of service

or safety achievement, which must be in the form of a
tangible personal property other than cash or gift
certificate, with an annual monetary value not exceeding
one-half (1/2) month of the basic salary of the employee
receiving the award under an established written plan
which does not discriminate in favor of highly paid
employees ; dctai
(8) Christmas and major anniversary celebrations for

employees and their guests ;
(9) Company picnics and sports tournaments in the

Philippines and are participated exclusively by
employees ; and
(10) Flowers, fruits, books or similar items given to

employees under special circumstances, e.g. on account
of illness, marriage, birth of a baby, etc.
(D) Tax Accounting for the Fringe Benefit Furnished to the

Employee and the Fringe Benefit Tax Due Thereon. As a
general rule, the amount of taxable fringe benefit and the fringe
benefits tax shall constitute allowable deductions from gross
income of the employer. However, if the basis for computation
of the fringe benefits tax is the depreciation value, the zonal
value as determined by the Commissioner pursuant to Section
6(E) of the Code or the fair market value as determined in
the current real property tax declaration of a certain property,
only the actual fringe benefits tax paid shall constitute a
deductible expense for the employer. The value of the fringe
benefit shall not be deductible and shall be presumed to have
been tacked on or actually claimed as depreciation expense by
the employer.
Provided, however, that if the aforesaid zonal value or fair

market value of the said property is greater than its cost subject
to depreciation, the excess amount shall be allowed as a
deduction from the employer's gross income as fringe benefit
expense.
Illustrations on fringe benefit furnished or granted by the

employer to an employee (other than a rank-and-file employee)
(1) During the year 1998, ABC Corporation paid for the
monthly rental of a residential house of its branch
manager (Mr. Dela Cruz) amounting to P66,000.00.
In this case, the monthly taxable grossed-up monetary

value of the said fringe benefit furnished or granted to its
branch manager (Mr. Dela Cruz) shall be P50,000.00,
computed as follows:
Monthly rental for the residential house P66,000.00

Grossed-up monetary benefit granted
(P66,000.00 divided by 66% factor for
calendar year 1998 times 50% taxable portion) P50,000.00

Fringe benefit tax due thereon (34%) P17,000.00
=========
ABC Corporation shall take up in its books of accounts

the P66,000.00 fringe benefit furnished to Mr. Dela
Cruz, under account title "Fringe Benefit Expense" and
the amount of 17,000.00 under the account title "Fringe
Benefit Tax Expense". The aforesaid amounts shall be
fully allowed as deductions from the gross income of
ABC Corporation and shall be taken up in the said
employer's books of accounts as follows:
Debit: Fringe Benefit Expense P66,000

Debit: Fringe Benefit Tax Expense P17,000
Credit: Cash P83,000
To record fringe benefit expense and

fringe benefit tax paid on rental of the
residential property furnished to Mr. Dela
Cruz for his residential use. (Note: If the
fringe benefit expense of P66,000.00 has
already accrued but not yet paid, use the
account title "fringe benefit payable". If the
fringe benefit tax has already accrued but not
yet paid, use the account title "fringe benefit
tax payable").
(2) XYZ Corporation owns a condominium unit. During the

year 1998, the said corporation furnished and granted the
said property for the residential use of its Assistant
Vice-President. The fair market value of the said
property as determined by the Commissioner pursuant to
Section 6(E) of the Code amounts P10,000,000.00 while
its fair market value as shown in its current Real
Property Tax Declaration amounts to P8,000,000.00. In
this case, the higher fair market value of P10,000,000.00
as determined by the Commissioner shall be used in
computing the monetary of the fringe benefit so
furnished or granted to said employee and the fringe
benefit tax due thereon shall be computed as follows:
Monthly rental value of the property

(P10,000,000 times 5% thereof times 50%
divided by 12 months) P20,833.33
Grossed-up monetary value thereof as fringe

benefit (P20,833.33 divided by 66% factor for
calendar year 1998) P31,565.66
Fringe Benefit tax due thereon (34%) P10,732.32

=========
In general, under this illustration, the XYZ Corporation shall

not further claim deduction for allowing its Assistant
Vice-President the use of its residential property since the cost
for the use thereof has already been recovered as deduction
from its gross income under "Depreciation Expense". However,
since the fringe benefit tax in the amount of P10,732.32,
assumed and paid by XYZ Corporation has not as yet been
recovered by way of deduction from gross income, the same
shall be allowed as a deduction from its gross income. XYZ
Corporation shall take up the foregoing in its books of accounts,
as follows:
Debit: Fringe Benefit Tax Expense P10,732.32
Credit: Cash/Fringe Benefit Tax Payable P10,732.32
To record fringe benefit tax expense for the

residential property furnished to employees.
However, if the cost of the aforesaid condominium unit subject

to depreciation allowance (example: its acquisition cost is only
P7,000,000.00) is lesser than its fair market value as determined
by the Commissioner (i.e. P10,000,000.00), the excess amount
(i.e. P3,000,000.00) shall be amortized throughout the
remaining estimated useful life of the residential property used
in computing the said employer's depreciation expense and
allowed as a deduction from the said employer's gross income
as fringe benefit expense. Thus, if the remaining estimated
useful life thereof during the year 1998 is fifteen (15) years, its
monthly amortization shall be computed as follows:
Monthly amortization (P3,000,000.00 divided by

15 years divided by 12 months) P16,666.67
In this case, XYZ Corporation shall take up the foregoing in its

books of accounts as follows:
Debit: Fringe benefit expense P16,666.67

Debit: Fringe benefit tax P10,732.32
Credit: Income constructively realized P16,666.67

Credit: Cash/Fringe benefit tax payable P10,732.32
To record fringe benefit and fringe benefit tax expenses and

income constructively realized from the use of company-owned
residential property furnished to employees.
REPEALING CLAUSE All existing rules and regulations or parts thereof

which are inconsistent with the provisions of these regulations are hereby revoked.
LibLex
EFFECTIVITY These regulations shall take effect on fringe benefits

furnished, granted or paid beginning January 1, 1998.
TRANSITORY PROVISIONS No penalty shall be imposed for late
payment of the fringe benefit tax for the first quarter ending March 1998:
Provided, however, that the withholding tax return for the first quarter shall be
filed and the tax is paid not later than July 25, 1998. LLjur

Secretary
Commissioner
(11)
April 17, 1998

the National Internal Revenue Code, as Amended" Relative
to the Withholding on Income Subject to the Expanded
Withholding Tax and Final Withholding Tax, Withholding
of Income Tax on Compensation, Withholding of
Creditable Value-Added Tax and Other Percentage Taxes
Pursuant to Sec. 244 of the National Internal Revenue Code, as amended, in
relation to Sections 57 to 59, Sections 78 to 83, Section 114(C) and Sections, 116
to 127 of Republic Act 8424, these regulations are hereby promulgated which shall
govern the collection at source on income paid on or after January 1, 1998 and
prescribing the Revised Withholding Tax Tables on compensation.
SECTION 2.57. Withholding of Tax at Source.
(A) Final Withholding Tax. Under the final withholding tax system the
amount of income tax withheld by the withholding agent is constituted as a full
and final payment of the income tax due from the payee on the said income. The
liability for payment of the tax rests primarily on the payor as a withholding agent.
Thus, in case of his failure to withhold the tax or in case of under withholding, the
deficiency tax shall be collected from the payor/withholding agent. The payee is
not required to file an income tax return for the particular income. LLpr
The finality of the withholding tax is limited only to the payee's income tax
liability on the particular income. It does not extend to the payee's other tax
liability on said income, such as when the said income is further subject to a
percentage tax. For example, if a bank receives income subject to final withholding
tax, the same shall be subject to a percentage tax. cdasia
(B) Creditable Withholding Tax. Under the creditable withholding tax

system, taxes withheld on certain income payments are intended to equal or at
least approximate the tax due of the payee on said income. The income recipient is
still required to file an income tax return, as prescribed in Sec. 51 and Sec. 52 of
the NIRC, as amended, to report the income and/or pay the difference between the
tax withheld and the tax due on the income. Taxes withheld on income payments
covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these
regulations) and compensation income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature.
SECTION 2.57.1. Income Payments Subject to Final Withholding Tax.

The following forms of income shall be subject to final withholding tax at the rates
herein specified;
(A) Income payments to a citizen or to a resident alien individual;
(1) Interest from any peso bank deposit, and yield or any other
monetary benefit from deposit substitutes and from trust funds
and similar arrangements; royalties (except on books as well as
other literary works and musical compositions), prizes (except
prizes amounting to ten thousand pesos (P10,000.00) or less
which shall be subject to tax under Sec. 24 (A) of the Code) and
other winnings (except Philippine Charity Sweepstakes
winnings and lotto winnings) derived from sources within the
Philippines Twenty percent (20%).
(2) Royalties on books, as well as other literary works and musical

compositions Ten percent (10%).
(3) Interest income received by a resident individual taxpayer from

a depository bank under the Foreign Currency Deposit System
Seven and one-half percent (7.5%).
(4) Interest income from long-term deposit or investment in the

form of savings, common or individual trust funds, deposit
substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed
by the Bangko Sentral ng Pilipinas which was pre-terminated
by the holder before the fifth (5th) year at the rates herein
prescribed to be deducted and withheld from the proceeds
thereof based on the length of time that the instrument was held
by the taxpayer
Holding Period Rate
Four (4) years to less than five (5) years 5%

Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
(5) Cash and/or property dividends actually or constructively

received from a domestic corporation, joint stock company,
insurance or mutual fund companies or on the share of an
individual partner in the distributable net income after tax of a
partnership (except general professional partnership) or on the
share of an individual in the net income after tax of an
association, a joint account or a joint venture or consortium of
which he is a member or a co-venturer.
6% - beginning January 1, 1998

8% - beginning January 1, 1999 and
10% - beginning January 1, 2000 and thereafter
The tax on cash and property dividends shall only be

imposed on dividends which are declared from profits of
corporations made after December 31, 1997. prLL
(6) On capital gains presumed to have been realized from the sale,
exchange or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro
sales and other forms of conditional sales based on the gross
selling price or fair market value as determined in accordance
with Sec. 6(E) of the Code (i.e. the authority of the
Commissioner to prescribe the real property values), whichever
is higher Six percent (6%).
In case of dispositions of real property made by individuals to the

government or any of its political subdivisions or agencies or to
government-owned or controlled corporations, the tax to be imposed shall be
determined either under Section 24(A) of the Code for normal income tax for
individual citizens and residents or under Section 24(D)(1) of the Code for the
final tax on capital gains from sale of property at six percent (6%), at the option of
the taxpayer. LLphil
(B) Income Payment to Non-resident Aliens Engaged in Trade or Business

in the Philippines. The following forms of income derived from sources within
the Philippines shall be subject to final withholding tax in the hands of a
non-resident alien individual engaged in trade or business within the Philippines,
based on the gross amount thereof and at the rates prescribed therefor:
(1) On Certain Passive Income A tax of twenty (20%) percent is

hereby imposed on certain passive income received from all
sources within the Philippines.
(a) Cash and/or property dividend from a domestic

corporation or from a joint stock company, or from an
insurance or mutual fund company or from a regional
operating headquarter of a multinational company;
(b) Share in the distributable net income after tax of a

partnership (except general professional partnership) of
which he is a partner, or share in the net income after tax
of an association, a joint account, or a joint venture of
which he is a member or a co-venturer;
(c) Interests from any currency bank deposit and yield or

any other monetary benefit from deposit substitutes and
from trust funds and similar arrangements;
(d) Royalties (except royalties on books, as well as other

literary works and musical compositions which shall be
subject to 10% final withholding tax);
(e) Prizes (except prizes amounting to ten thousand pesos
(P10,000.00) or less subject to tax under Sec. 25 (A) (1)
of the Code for the normal rates of income tax for
individuals) and other winnings (except Philippine
Charity Sweepstakes winnings and lotto winnings);
(2) Interest income derived from long-term deposit or investment in

the form of savings, common or individual trust funds, deposit
substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed
by the Bangko Sentral ng Pilipinas which was pre-terminated
by the holder before the fifth (5th) year at the rates herein
prescribed to be deducted and withheld from the proceeds
thereof based on the length of time that the instrument was held
by the taxpayer
Holding Period Rate
Four (4) years to less than five (5) years 5%

Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
(3) On capital gains presumed to have been realized from the sale
Commissioner to prescribe zonal values), whichever is higher
Six percent (6%).
In case of dispositions of real property made by individuals to government

or any of its political subdivisions or agencies or to government-owned or
controlled corporations, the tax to be imposed shall be determined either under
Section 24(A) of the code for the normal rate of income tax for individual citizens
and residents or under Section 24(D)(1) of the Code for the final tax on capital
gains from sale of property at six percent (6%), at the option of the taxpayer.
(C) Income Derived from All Sources Within the Philippines by a

Non-resident Alien Individual Not Engaged in Trade or Business Within the
Philippines. The following forms of income derived from all sources within the
Philippines shall be subject to a final withholding tax in the hands of a
non-resident alien individual not engaged in trade or business within the
Philippines based on the following amounts and at the rates prescribed therefor:
(1) On the gross amount of income derived from all sources within
the Philippines by a non-resident alien individual who is not
engaged in trade or business in the Philippines as interest, cash
and/or property dividends, rents, salaries, wages, premiums,
annuities, compensation, remuneration, emoluments, or other
fixed or determinable annual or periodic or casual gains, profits
and income and capital gains Twenty five percent (25%). Cdpr
Commissioner to prescribe the real property values), whichever
is higher Six percent (6%).
In case of dispositions of real property made by individuals to government

or any of its political subdivisions or agencies or to government-owned or
controlled corporations, the tax to be imposed shall be determined either under
Sec. 24(a) of the Code for the rates of income tax for individual citizens and
residents or under Sec. 24(D)(1) of the Code for the final tax on capital gains from
sale of property at six percent (6%), at the option of the taxpayer.
(D) Income Derived by Alien Individuals Employed by Regional or Area

Headquarters and Regional Operating Headquarters of Multinational Companies.
A final withholding tax equivalent to fifteen percent (15%) shall be withheld by
the withholding agent from the gross income received by every alien individual
occupying managerial and technical positions in regional or area headquarters and
regional operating headquarters and representative offices established in the
Philippines by multinational companies as salaries, wages, annuities,
compensation, remuneration, and other emoluments, such as honoraria and
allowances, except income which is subject to the fringe benefits tax, from such
regional or area headquarters and regional operating headquarters.
The same tax treatment shall apply to Filipinos employed and occupying
the same as those of alien employed by these multinational companies.
The term "multinational company" means a foreign firm or entity engaged

in international trade with its affiliates or subsidiaries or branch offices in the Asia
Pacific Region and other foreign markets.
(E) Income Derived by Alien Individuals Employed by Offshore Banking
Units. A final withholding tax equivalent to fifteen (15%) shall be withheld by
the withholding agent from the gross income of alien individuals occupying
managerial or technical positions in offshore banking units established in the
Philippines, as salaries, wages, annuities, compensations, remuneration and other
emoluments such as honoraria and allowances, received from such offshore
banking units. cdphil
The same tax treatment shall apply to Filipinos employed and occupying
the same positions as those of aliens who are employed by these offshore banking
units.
(F) Income of Aliens Employed by Foreign Petroleum Service Contractors

and Subcontractors. A final withholding tax equivalent to fifteen percent (15%)
shall be withheld from the gross income of an alien individual who is a permanent
resident of a foreign country but who is employed and assigned in the Philippines
by a foreign service contractor or by a foreign service subcontractor who is
engaged in petroleum operations in the Philippines. His gross income includes
salaries, wages, annuities, compensation, remuneration and other emoluments,
such as honoraria and allowances, received from such contractor or subcontractor.
The same tax treatment shall apply to Filipinos who are employed and
occupying the same positions as those of aliens employed by a foreign petroleum
service contractor or subcontractor.
(G) Income Payment to a Domestic Corporation. The following items

of income shall be subject to a final withholding tax in the hands of a domestic
corporation, based on the gross amount thereof and at the rate of tax prescribed
therefor:
(1) Interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust fund
and similar arrangements derived from sources within the
Philippines Twenty Percent (20%).
(2) Royalties derived from sources within the Philippines

Twenty percent (20%).
(3) Interest income derived from a depository bank under the

Expanded Foreign Currency Deposit System, otherwise known
as a Foreign Currency Deposit Unit (FCDU) Seven and
one-half percent (7.5%).
(4) Income derived by a depository bank under the Expanded

Foreign Currency Deposit System from foreign transactions
with local commercial banks including branches of foreign
banks that may be authorized by the Bangko Sentral ng
Pilipinas (BSP) to transact business with Foreign Currency
Deposit System Units and other depository banks under the
expanded foreign currency deposit system including interest
income from foreign currency loans granted by such depository
bank under the said expanded foreign currency deposit system
to residents Ten percent (10%).
Philippines classified as capital assets, including pacto de retro
with Sec. 6(E) of the Code, whichever is higher Six percent
(6%).
(H) Income Payment to a Resident Foreign Corporation. The following

forms of income shall be subject to a final withholding tax in the hands of a
foreign corporation, based on the gross amount thereof and at the rate of tax
prescribed therefor:
(1) Offshore Banking Units On income derived by offshore

banking units authorized by the Bangko Sentral ng Pilipinas
(BSP) from foreign currency transactions with local commercial
banks and branches of foreign banks that may be authorized by
the BSP to transact business with offshore banking units and
other OBUs including interest income derived from foreign
currency loans granted to resident Ten percent (10%).
(2) Tax on Branch Profit Remittances On any profit remitted by

the Philippine branch of a foreign corporation to its head office
abroad based on the total profits applied or earmarked for
remittance without any deduction for the tax component thereof
except those registered with the Philippine Economic Zones
Authority (PEZA) and other companies within the special
economic zones such as Subic Bay Metropolitan Authority
(SBMA) and Clark Development Authority (CDA) Fifteen
percent (15%).
Interests, dividends, rents, royalties (including

remunerations for technical services), salaries, wages,
premiums, annuities, emoluments or other fixed or determinable
annual periodic or casual gains, profits, income and capital
gains received by a foreign corporation during each taxable year
from all sources within the Philippines shall not be considered
as branch profits unless the same are effectively connected with
the conduct of its trade or business in the Philippines.
(3) Interest on any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds
and similar arrangements and royalties derived from sources
within the Philippines Twenty percent (20%).
(4) Interest income derived from a Depository Bank under the

Expanded Foreign Currency Deposit system Seven and
one-half percent (7.5%).
(5) Income derived by a depository bank under the expanded

foreign currency deposit system from foreign currency
transactions with local commercial banks including branches of
foreign banks that may be authorized by the Bangko Sentral ng
Pilipinas to transact business with foreign currency deposit
system units and other depository banks under the expanded
foreign currency deposit system including interest income from
foreign currency loans granted by such depository banks under
the said expanded foreign currency deposit system to resident
Ten percent (10%).
(I) Income Derived From all Sources Within the Philippines by Non-
Resident Foreign Corporation. The following shall be subject to final
withholding tax based on the gross amount of income and at the rate of tax
prescribed therefor:
(1) In general On gross income derived from all sources within

the Philippines such as interests, dividends, rents, royalties,
salaries, premiums (except reinsurance premiums), annuities,
emoluments, or other fixed or determinable annual, periodic or
casual gains, profits and income and capital gains (except
capital gains realized from sale, exchange, disposition of shares
of stock in any domestic corporation which is subject to capital
gains tax under Sec. 28(B)(5)(c) at the following rates:
34% - beginning January 1, 1998

33% - beginning January 1, 1999 and
32% - beginning January 1, 2000 and thereafter
(2) Gross income from all sources within the Philippines derived by
non-resident cinematographic film owners, lessors or
distributors Twenty five percent (25%).
(3) On the gross rentals, lease and charter fees, derived by

non-resident owner or lessor of vessels from leases or charters
to Filipino citizens or corporations as approved by the Maritime
Industry Authority Four and one-half percent (4.5%).
(4) On the gross rentals, charter and other fees derived by

non-resident lessor of aircraft, machineries and other equipment
Seven and a half percent (7.5%).
(5) Interest on foreign loans contracted on or after August 1, 1986

Twenty percent (20%).
(6) Dividends received from a domestic corporation Fifteen

percent (15%) of the cash and/or property dividends received
from a domestic corporation subject to the condition that the
country in which the nonresident foreign corporation is
domiciled (a) shall allow a credit against the tax due from the
said nonresident foreign corporation which are equivalent to
taxes deemed to have been paid in the Philippines equal to
twenty percent (20%) for 1997, nineteen percent (19%) for
1998, eighteen percent (18%) for 1999 and seventeen percent
(17%) thereafter, which represents the difference between the
regular income tax of thirty-five percent (35%) in 1997, thirty
four percent (34%) in 1998, thirty three percent (33%) in 1999,
and thirty two percent (32%) thereafter on corporations and the
fifteen percent (15%) tax on dividends as herein provided; or,
(b) does not impose any income tax on dividends received from
a domestic corporation.
(J) Fringe Benefits Granted to the Employee (Except Rank and File
Employee). There shall be imposed a final tax of 34% beginning January 1,
1998; 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and
thereafter, on the grossed-up monetary value of fringe benefits, granted or
furnished by the employer to his employees (except rank and file as defined in the
Code). Fringe benefits however, which are required by the nature of or necessary
to the trade, business or profession of the employer, or where such fringe benefit is
for the convenience and advantage of the employer shall not be subject to the
fringe benefits tax. prcd
The term fringe benefit means any good, service or other benefit furnished
or granted in cash or in kind by an employer to an individual employee (except
rank and file employees) such as but not limited to, the following:
(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs or other
similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
or similar amounts in excess of what the law allows.
Fringe benefits granted to the following employees and taxable under Sec.
25 (B), (C), (D) and (E) shall also be subject to the fringe benefit tax to wit:
Sec. 25(B) Non-resident alien individual not engaged in trade or

business in the Philippines.
Sec. 25(C) Alien individual employed by regional or area

headquarters and regional operating headquarters of a multinational
company, including any of its Filipino employees employed and occupying
the same position as those of its aforesaid alien employees;
Sec. 25(D) Alien individual employed by an offshore banking unit of

a foreign bank established in the Philippines, including any of its Filipino
employees employed and occupying the same position as those of its
aforesaid alien employees;
Sec. 25(E) Alien individual employed by a foreign service

contractor and subcontractor engaged in petroleum operations in the
Philippines, including any of its Filipino employees employed and occupying
the same position as those of its aforesaid alien employees.
The computation and the scheme for withholding the tax on fringe benefits
shall be governed by such revenue orders that the Commissioner shall issue as
guidelines and clarifications for its proper and consistent implementation.
(K) Informer's Reward to Persons Instrumental in the Discovery of

Violations of the National Internal Revenue Code and the Discovery and Seizure
of Smuggled Goods. The following rewards shall be subject to a final
withholding tax at the rate of ten percent (10%):
(1) Those given to persons, except an internal revenue official or

employee, or other public official or employee or his relative
within the sixth degree of consanguinity, who voluntarily gives
definite and sworn information not yet in the possession of the
BIR, leading to the discovery of frauds upon the Internal
Revenue Laws or violations of any of the provisions thereof,
thereby resulting in the recovery of revenues, surcharges and
fees and/or the conviction of the guilty party and/or imposition
of any fine or penalty.
(2) Those given to an informer where the offender has offered to

compromise the violation of law committed by him and his
offer has been accepted by the Commissioner and collected
from the offender.
The amount of reward shall be equivalent to ten percent

(10%) of the revenues, surcharges or fees recovered and/or fine
or penalty imposed and collected or one million pesos
(P1,000,000.00) per case whichever is lower.
The reward shall be paid under the rules and regulations

issued by the Secretary of Finance, upon the recommendation
of the Commissioner. However, such person shall not be
entitled to a reward, should no revenue, surcharges or fees be
actually recovered or collected nor shall apply to a case already
pending or previously investigated or examined by the
Commissioner or any of his deputies or agents or examiners, or
the Secretary of Finance or any of his deputies or agents.
(3) Those given to persons instrumental in the discovery and

seizure of such smuggled goods.
The amount of reward shall be equivalent to ten percent

of the market value of the smuggled and confiscated goods or
one million pesos (P1,000,000.00) per case whichever is lower.
prLL
SECTION 2.57.2. Income Payment Subject to Creditable Withholding Tax

and Rates Prescribed Thereon. Except as herein otherwise provided, there shall
be withheld a creditable income tax at the rates herein specified for each class of
payee from the following items of income payments to persons residing in the
Philippines:
(A) Professional fees, talent fees, etc., for services rendered by individuals
On the gross professional, promotional and talent fees or any other form of
remuneration for the services of the following individuals Ten percent (10%);
(1) Those individually engaged in the practice of professions or

callings: lawyers; certified public accountants; doctors of
medicine; architects; civil, electrical, chemical, mechanical,
structural, industrial, mining, sanitary, metallurgical and
geodetic engineers; marine surveyors; doctors of veterinary
science; dentist; professional appraisers; connoisseurs of
tobacco; actuaries; and interior decorators;
(2) Professional entertainers such as but not limited to actors and

actresses, singers and emcees;
(3) Professional athletes including basketball players, pelotaris and

jockeys;
(4) All directors involved in movies, stage, radio, television and

musical productions;
(5) Insurance agents and insurance adjusters;
(6) Management and technical consultants;
(7) Bookkeeping agents and agencies;
(8) Other recipients of talent fees;
(9) Fees of directors who are not employees of the company paying
such fees, whose duties are confined to attendance at and
participation in the meetings of the board of directors.
The amounts subject to withholding under this paragraph shall include not
only fees, but also per diems, allowances and any other form of income payments.
In the case of professional entertainers, athletes, and all recipient of talent fees, the
amount subject to withholding tax shall also include amounts paid to them in
consideration for the use of their names or pictures in print, broadcast, or other
media or for public appearances, for purposes of advertisements or sales
promotion.
(B) Professional fees, talent fees, etc. for services of taxable juridical
persons On the gross professional, promotional and talents fees, or any other
form of remuneration enumerated in the preceding subparagraph for the services of
taxable juridical persons Five percent (5%).
(C) Rentals On gross rental for the continued use or possession of real
property used in business which the payor or obligor has not taken or is not taking
title, or in which he has no equity Five percent (5%).
(D) Cinematographic film rentals and other payments On gross

payments to resident individuals and corporate cinematographic film owners,
lessors or distributors Five percent (5%).
(E) Income payments to certain contractors On gross payments to the

following contractors, whether individual or corporate One percent (1%).
(1) General engineering contractors Those whose principal

contracting business in connection with fixed works requiring
specialized engineering knowledge and skill including the
following divisions or subjects:
(a) Reclamation works;
(b) Railroads;
(c) Highways, streets and roads;
(d) Tunnels;
(e) Airports and airways;
(f) Waste reduction plants;
(g) Bridges, overpasses, underpasses and other similar

works;
(h) Pipelines and other systems for the transmission of

petroleum and other liquid or gaseous substances;
(i) Land leveling;
(j) Excavating;
(k) Trenching;
(l) Paving; and
(m) Surfacing work.
(2) General Building contractors Those whose principal

contracting business is in connection with any structure built,
for the support, shelter and enclosure of persons, animals,
chattels, or movable property of any kind, requiring in its
construction the use of more than two unrelated building trades
or crafts, or to do or superintend the whole or any part thereto.
Such structure includes sewers and sewerage disposal plants
and systems, parks, playgrounds, and other recreational works,
refineries, chemical plants and similar industrial plants
requiring specialized engineering knowledge and skills,
powerhouse, power plants and other utility plants and
installation, mines and metallurgical plants, cement and
concrete works in connection with the above-mentioned fixed
works.
(3) Specialty Contractors Those whose operations pertain to the

performance of construction work requiring special skill and
whose principal contracting business involves the use of
specialized building trades or crafts. cdasia
(4) Other contractors
(a) Filling, demolition and salvage work contractors and

operators of mine drilling apparatus;
(b) Operators of dockyards;
(c) Persons engaged in the installation of water system, and

gas or electric light, heat or power;
(d) Operators of stevedoring, warehousing or forwarding

establishments;
(e) Transportation contractors which include common

carriers for the carriage of goods and merchandise of
whatever kind by land, air or water, where the gross
payments by the payor to the same payee amounts to at
least two thousand pesos (P2,000) per month, regardless
of the number of shipments during the month;
(f) Printers, bookbinders, lithographers and publishers

except those principally engaged in the publication or
printing of any newspaper, magazine, review or bulletin
which appears at regular intervals, with fixed prices for
subscription and sale;
(g) Messengerial, janitorial, private detective and/or security

agencies, credit and/or collection agencies and other
business agencies;
(h) Advertising agencies, exclusive of gross payments to

media;
(i) Independent producers of television, radio and stage

performances or shows;
(j) Independent producers of "jingles";
(k) Labor recruiting agencies
(l) Persons engaged in the installation of elevators, central

air conditioning units, computer machines and other
equipment and machineries and the maintenance services
thereon;
(m) Persons engaged in the sale of computer services;
(n) Persons engaged in landscaping services;
(o) Persons engaged in the collection and disposal of

garbage;
(p) TV and radio station operators on sale of TV and radio

airtime; and
(q) TV and radio blocktimers on sale of TV and radio

commercial spots.
(F) Income distribution to the beneficiaries. On income distributed to

the beneficiaries of estates and trust as determined under Sec. 60 of the Code,
except such income subject to final withholding tax and tax exempt income
Fifteen percent (15%);
(G) Income payments to certain brokers and agents. On gross

commissions of customs, insurance, real estate and commercial brokers and fees of
agents of professional entertainers Five percent (5%);
(H) Income payments to partners of general professional partnerships.

Income payments made periodically or at the end of the taxable year by a general
professional partnership to the partners, such as drawings, advances, sharings,
allowances, stipends, etc. Ten percent (10%);
(I) Professional fees paid to medical practitioners. Any amount

collected for and paid to medical practitioners by hospitals and clinics or paid by
patients to the medical practitioners through the hospital or clinic Ten percent
(10%);
(J) Gross selling price or total amount of consideration or its equivalent

paid to the seller/owner for the sale, exchange or transfer of . Real property,
other than capital assets, sold by an individual, corporation, estate, trust, trust fund
or pension fund and the seller/transferor is habitually engaged in the real estate
business in accordance with the following schedule
Those which are exempt from a withholding

tax at source as prescribed in Sec. 2.57.5 of
these regulations Exempt
With a selling price of five hundred thousand

pesos (P500,000.00) or less 1.5%
With a selling price of more than five hundred

thousand pesos (P500,000.00) but not more
than two million pesos (P2,000,000.00) 3.0%
With selling price of more than two million pesos

(P2,000,000.00) 5.0%
A seller/transferor must show proof of registration with HLURB or

HUDCC to be considered as habitually engaged in the real estate business.
Real property, other than capital asset, by an individual, estate, trust, trust
fund or pension fund or by a corporation who is not habitually engaged in the real
estate business Seven and one-half percent (7.5%). LLphil
Gross selling price shall mean the consideration stated in the sales
document or the fair market value determined in accordance with Section 6 (E) of
the Code, as amended, whichever is higher. In an exchange, the fair market value
of the property received in exchange, as determined in the Income Tax Regulations
shall be used.
Where the consideration or part thereof is payable on installment, no

withholding of tax is required to be made on the periodic installment payments
where the buyer is an individual not engaged in trade or business. In such a case,
the applicable rate of tax based on the entire consideration shall be withheld on the
last installment or installments to be paid to the seller.
However, if the buyer is engaged in trade or business, whether a

corporation or otherwise, the tax shall be deducted and withheld by the buyer on
every installment.
(K) Additional income payments to government personnel from importers,

shipping and airline companies, or their agents. On gross additional payments
by importers, shipping and airline companies, or their agents to government
personnel for overtime services as authorized by law Fifteen percent (15%);
For this purpose, the importers, shipping and airline companies or their
agents, shall be the withholding agents of the Government;
(L) Certain income payments made by credit card companies. On the

gross amounts paid by any credit card company in the Philippines to any business
entity, whether a natural or juridical person, representing the sales of
goods/services made by the aforesaid business entity to cardholders One half
percent (1/2%);
(M) Income payments made by the top five thousand (5,000) corporations.
Income payments made by any of the top five thousand (5,000) corporations, as
determined by the Commissioner, to their local supplier of goods One percent
(1%);
(1) The term "goods" pertains to tangible personal property. It does

not include intangible personal property as well as real
property.
(2) The term "local suppliers of goods" pertains to a supplier from

whom any of the top five thousand (5,000) corporations, as
determined by the Commissioner, regularly makes its purchases
of goods. As a general rule, this term does not include a casual
purchase of goods, that is, purchases made from non-regular
suppliers and oftentimes involving single purchases. However,
a single purchase which involves one hundred thousand pesos
(P100,000.00) or more shall be subject to a withholding tax.
(3) A corporation shall not be considered a withholding agent for

purposes of this Section, unless such corporation has been
determined and duly notified in writing by the Commissioner
that it has been selected as one of the top five thousand (5,000)
corporations.
(4) The withholding agent shall submit on a semestral basis a list of
its regular suppliers of goods to the Revenue District Office
(RDO) having jurisdiction over the withholding agent's
principal place of business on or before July 31 and January 31
of each year.
(N) Income payments by government. Income payments, except any

single purchase which is P10,000 and below, which are made by a government
office, national or local, including government-owned or controlled corporations,
on their purchases of goods from local suppliers One percent (1%);
A government-owned or controlled corporation which is listed as one of the

top five thousand (5,000) corporations shall withhold the tax in its capacity as a
government-owned or controlled corporation rather than as one of the top five
thousand (5,000) corporations. cdasia
SECTION 2.57.3. Persons Required to Deduct and Withhold. The

following persons are hereby constituted as withholding agents for purposes of the
creditable tax required to be withheld on income payments enumerated in Section
2.57.2:
(A) In general, any juridical person, whether or not engaged in trade

or business;
(B) An individual, with respect to payments made in connection

with his trade or business. However, insofar as taxable sale,
exchange or transfer of real property is concerned, individual
buyers who are not engaged in trade or business are also
constituted as withholding agents;
(C) All government offices including government-owned or

controlled corporations, as well as provincial, city and
municipal governments.
SECTION 2.57.4. Time of Withholding. The obligation of the payor to

deduct and withhold the tax under Section 2.57 of these regulations arises at the
time an income is paid or payable, whichever comes first, the term "payable"
refers to the date the obligation become due, demandable or legally enforceable.
SECTION 2.57.5. Exemption from Withholding. The withholding of

creditable withholding tax prescribed in these Regulations shall not apply to
income payments made to the following:
(A) National government and its instrumentalities, including

provincial, city or municipal governments;
(B) Persons enjoying exemption from payment of income taxes

pursuant to the provisions of any law, general or special, such
as but not limited to the following:
(1) Sales of real property by a corporation which is

registered with and certified by the Housing and Land
Use Regulatory Board (HLURB) or HUDCC as engaged
in socialized housing project where the selling price of
the house and lot or only the lot does not exceed one
hundred eighty thousand pesos (P180,000) in Metro
Manila and other highly urbanized areas and one
hundred fifty thousand pesos (P150,000) in other areas
or such adjusted amount of selling price for socialized
housing as may later be determined and adopted by the
HLURB, as provided under Republic Act No. 7279 and
its implementing regulations;
(2) Corporations registered with the Board of Investments

and enjoying exemption from the income tax provided
by Republic Act No. 7916 and the Omnibus Investment
Code of 1987;
(3) Corporations which are exempt from the income tax

under Sec. 30 of the NIRC, to wit: the Government
Service Insurance System (GSIS), the Social Security
System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity Sweepstakes
Office (PCSO) and the Philippine Amusement and
Gaming Corporation (PAGCOR); However, the income
payments arising from any activity which is conducted
for profit or income derived from real or personal
property shall be subject to a withholding tax as
prescribed in these regulations.
SECTION 2.58. Returns and Payment of Taxes Withheld at Source.
(A) Monthly return and payment of taxes withheld at source
(1) WHERE TO FILE Creditable and final withholding taxes deducted

and withheld by the withholding agent shall be paid upon filing a return in
duplicate with the authorized agent banks located within the Revenue District
Office (RDO) having jurisdiction over the residence or principal place of business
of the withholding agent. In places where there is no authorized agent banks, the
return shall be filed directly with the Revenue District Officer, Collection Officer
or the duly authorized Treasurer of the city or municipality where the withholding
agent's residence or principal place of business is located, or where the
withholding agent is a corporation, where the principal office is located except in
cases where the Commissioner otherwise permits.
(2) WHEN TO FILE
(a) The withholding tax return, whether creditable or final, shall be

filed and payments should be made within ten (10) days after
the end of each month except for taxes withheld for December
which shall be filed on or before January 25 of the following
year.
(b) For large taxpayers, the filing of the return and the payment of
tax shall be made within twenty five (25) days after the end of
each month.
(c) The return for final withholding taxes on interest from any
currency bank deposit and yield or any other monetary benefit
from deposit substitutes and from trust funds and similar
arrangements shall be filed and the payment made within
twenty five (25) days from the close of each calendar quarter.
(B) Withholding tax statement for taxes withheld Every payor required
to deduct and withhold taxes under these regulations shall furnish each payee,
whether individual or corporate, with a withholding tax statement, using the
prescribed form (BIR Form 2307) showing the income payments made and the
amount of taxes withheld therefrom, for every month of the quarter within twenty
(20) days following the close of the taxable quarter employed by the payee in
filing his/its quarterly income tax return. Upon request of the payee, however, the
payor must furnish such statement to the payee simultaneously with the income
payment. For final withholding taxes, the statement should be given to the payee
on or before January 31 of the succeeding year. dctai
(C) Annual information return for income tax withheld at source. The
payor is required to file with the Commissioner, Revenue Regional Director,
Revenue District Officer, Collection Agent in the city or municipality where the
payor has his legal residence or principal place of business, where the government
office is located in the case of a government agency, on or before January 31 of
the following year in which payments were made, an Annual Information Return
of Income Tax Withheld at Source (Form No. 1604), showing among others the
following information:
(1) Name, address and taxpayer's, identification number (TIN); and
(2) Nature of income payments, gross amount and amount of tax

withheld from each payee and such other information as may be
required by the Commissioner.
If the payor is the Government of the Philippines or any political

subdivision or agency thereof, or any government-owned or controlled
corporation, the return shall be made by the officer or employee having control of
the payments or by any designated officer or employee.
SECTION 2.58.1. Income of Recipient. Income upon which any

creditable tax is required to be withheld at source shall be included in the return of
its recipient. The excess of the withheld tax over the tax due on his return shall be
refunded to him subject to the authority of the Commissioner to refund taxes under
Sec. 204 of the NIRC. If the income tax collected at source is less than the tax due
on his return, the difference shall be paid in accordance with the provisions of Sec.
56 of the Code.
The taxes withheld by the withholding agents shall be maintained in

separate accounts and should not be commingled with any other funds of the
withholding agent. They shall be considered as a trust fund held for government
until they are remitted.
SECTION 2.58.2. Registration with the Register of Deeds. Deeds of

conveyances of land or land and building/improvement thereon arising from sales,
barters, or exchanges subject to the creditable expanded withholding tax shall not
be recorded by the Register of Deeds unless the Commissioner or his duly
authorized representative has certified that such transfers and conveyances have
been reported and the expanded withholding tax, inclusive of the documentary
stamp tax, due thereon have been fully paid, pursuant to the provisions of Sections
57 and 196 of the Code, respectively.
The Register of Deeds shall annotate on the Transfer Certificate of Title of

the said property such information required under Section 58 (E) of the Code. In
case of any violation of the said requirement, he shall be liable to the penalties
provided under Section 269 of the said Code.
SECTION 2.58.3. Claim for Tax Credit or Refund.
(A) The amount of creditable tax withheld shall be allowed as a tax credit
against the income tax liability of the payee in the quarter of the taxable year in
which income was earned or received.
(B) Claims for tax credit or refund of any creditable income tax which was
deducted and withheld on income payments shall be given due course only when it
is shown that the income payment has been declared as part of the gross income
and the fact of withholding is established by a copy of the withholding tax
statement duly issued by the payor to the payee showing the amount paid and the
amount of tax withheld therefrom.
Proof of remittance is the responsibility of the withholding agent.
(C) Excess Credits An individual or corporate taxpayer's excess

expanded withholding tax credits for the taxable quarter/year shall automatically
be allowed as a credit against his income tax due for the taxable quarters/years
immediately succeeding the taxable quarters/years in which the excess credit
arose, provided he submits with his income tax return, a copy of the first page of
his income tax return for the previous taxable period showing the amount of his
excess withholding tax credits, and on which return he has not opted for a cash
refund or tax credit certificate. cdtai
(1) If in lieu of the automatic application of his excess credit, the taxpayer
wants a cash refund or a tax credit certificate for use in payment of his other
national internal revenue tax liabilities, he shall make a written request therefor,
within two years after the payment of the tax (Ref. Secs. 204(c) and 229 of the
Code), provided however, that if the taxpayer has indicated in his income tax
return his option for either a cash refund or a tax credit certificate, such indication
shall be considered sufficient for the purpose. Upon filing of his request, the
taxpayer's income tax return showing the excess expanded withholding tax credits
shall be examined. The excess expanded withholding tax so determined, shall be
refunded/credited to the taxpayer.
(2) Sample computation of application of excess credits-ordinary
Taxable Period
1997 1998-QTR1 1998-QTR2 1998-QTR3
Tax Due 1,000 200 200 500
Less: Tax
Withheld (1,500) (500) (300) 0
Net Tax
Payable/
Creditable (500) (300) (100) 500
In the above illustration, there is an excess credit in 1997 that can be
applied to the subsequent quarter. And if the option to apply the excess credit is
initiated in the first quarter of 1998, the taxpayer cannot avail of a refund/tax credit
certificate of the excess credit of P500 in 1997.
SECTION 2.58.4. Verification of Returns and Statement. Any return,

statement or other documents required to be filed under these Regulations shall
contain a written declaration that it is made under penalties of perjury and such
declaration shall be under oath.
It shall be the duty of tax officials to accept the income tax return or other
documents submitted under oath.
SECTION 2.58.5. Requirement for Deductibility. Any income payment

which is otherwise deductible under the Code shall be allowed as a deduction from
the payor's gross income only if it is shown that the income tax required to be
withheld has been paid to the Bureau in accordance with Secs. 57 and 58 of the
Code.
A deduction will also be allowed in the following cases where no

withholding of tax was made: LexLib
(A) The payee reported the income and the withholding

agent/taxpayer pays the tax, including the interest incident to
the failure to withhold the tax, and surcharges, if applicable, at
the time of the original audit and investigation;
(B) The recipient/payee failed to report the income on the due date
thereof, but the withholding agent/taxpayer pays the tax,
including the interest incident to the failure to withhold the tax
and surcharges, if applicable, at the time of the original audit
and investigation;
(C) The withholding agent erroneously underwithheld the tax but

pays the difference between the correct amount and the amount
of tax withheld, including the interest, incident to such error,
and surcharges, if applicable, at the time of the original audit
and investigation.
SECTION 2.58.6. Tax Paid by Recipient of Income. Every person who

is required to withhold the tax from the compensation of an employee is liable for
the payment of such tax to the BIR. Such liability stays even if the employee
subsequently pays the tax. The payment of the tax by the employee does not
relieve the employer from the liability for penalties and/or additions to the tax for
failure to deduct and withhold within the time prescribed by law or regulations.
The employer will not be relieved of his liability for payment of the tax required to
be withheld unless he can show that the tax has been paid by the employee. The
amount of any tax withheld/collected by the employer is a special fund in trust for
the government of the Philippines.
SECTION 2.78. Withholding Tax on Compensation. The withholding

of tax on compensation income is a method of collecting the income tax at source
upon receipt of the income. It applies to all employed individuals whether citizens
or aliens, deriving income from compensation for services rendered in the
Philippines. The employer is constituted as the withholding agent.
SECTION 2.78.1. Withholding of Income Tax on Compensation Income.
(A) Compensation Income Defined. In general, the term

"compensation" means all remuneration for services performed by an employee for
his employer under an employer-employee relationship, unless specifically
excluded by the Code.
The name by which the remuneration for services is designated is

immaterial. Thus, salaries, wages, emoluments and honoraria, allowances,
commissions (e.g., transportation, representation, entertainment and the like); fees
including director's fees, if the director is, at the same time, an employee of the
employer/corporation; taxable bonuses and fringe benefits except those which are
subject to the fringe benefits tax under Sec. 33 of the Code; taxable pensions and
retirement pay; and other income of a similar nature constitute compensation
income.
The basis upon which the remuneration is paid is immaterial in determining

whether the remuneration constitutes compensation. Thus, it may be paid on the
basis of piece-work, or a percentage of profits; and may be paid hourly, daily,
weekly, monthly or annually. cdrep
Remuneration for services constitutes compensation even if the relationship

of employer and employee does not exist any longer at the time when payment is
made between the person in whose employ the services had been performed and
the individual who performed them.
(1) Compensation paid in kind. Compensation may be paid in money

or in some medium other than money, as for example, stocks, bonds or other forms
of property. If services are paid for in a medium other than money, the fair market
value of the thing taken in payment is the amount to be included as compensation
subject to withholding. If the services are rendered at a stipulated price, in the
absence of evidence to the contrary, such price will be presumed to be the fair
market value of the remuneration received. If a corporation transfers to its
employees its own stock as remuneration for services rendered by the employee,
the amount of such remuneration is the fair market value of the stock at the time
the services were rendered.
(2) Living quarters or meals. If a person receives a salary as

remuneration for services rendered, and in addition thereto, living quarters or
meals are provided, the value to such person of the quarters and meals so furnished
shall be added to the remuneration paid for the purpose of determining the amount
of compensation subject to withholding. However, if living quarters or meals are
furnished to an employee for the convenience of the employer, the value thereof
need not be included as part of compensation income.
(3) Facilities and privileges of a relatively small value. Ordinarily,

facilities and privileges (such as entertainment, medical services, or so called
"courtesy" discounts on purchases), furnished or offered by an employer to his
employees generally, are not considered as compensation subject to withholding if
such facilities or privileges are of relatively small value and are offered or
furnished by the employer merely as a means of promoting the health, goodwill,
contentment, or efficiency of his employees.
Where compensation is paid in property other than money, the employer

shall make necessary arrangements to ensure that the amount of the tax required to
be withheld is available for payment to the Commissioner.
(4) Tips and gratuities. Tips or gratuities paid directly to an employee

by a customer of the employer which are not accounted for by the employee to the
employer are considered as taxable income but not subject to withholding.
(5) Pensions, retirement and separation pay. Pensions, retirement and

separation pay constitute compensation subject to withholding, except those
provided under Subsection B of this section.
(6) Fixed or variable transportation, representation and other allowances

(a) IN GENERAL, fixed or variable transportation, representation

and other allowances which are received by a public officer or
employee or officer or employee of a private entity, in addition
to the regular compensation fixed for his position or office, is
compensation subject to withholding.
(b) Any amount paid specifically, either as advances or

reimbursements for travelling, representation and other
bonafide ordinary and necessary expenses incurred or
reasonably expected to be incurred by the employee in the
performance of his duties are not compensation subject to
withholding, if the following conditions are satisfied:
(i) It is for ordinary and necessary travelling and

representation or entertainment expenses paid or
incurred by the employee in the pursuit of the trade,
business or profession; and
(ii) The employee is required to account/liquidate for the

foregoing expenses in accordance with the specific
requirements of substantiation for each category of
expenses pursuant to Sec. 34 of the Code. The excess of
actual expenses over advances made shall constitute
taxable income if such amount is not returned to the
employer. Reasonable amounts of reimbursements/
advances for travelling and entertainment expenses
which are pre-computed on a daily basis and are paid to
an employee while he is on an assignment or duty need
not be subject to the requirement of substantiation and to
withholding.
(7) Vacation and sick leave allowances. Amounts of "vacation

allowances or sick leave credits" which are paid to an employee constitute
compensation. Thus, the salary of an employee on vacation or on sick leave, which
are paid notwithstanding his absence from work, constitutes compensation.
However, the monetized value of unutilized vacation leave credits of ten (10) days
or less which were paid to the employee during the year are not subject to income
tax and to the withholding tax.
(8) Deductions made by employer from compensation of employee.

Any amount which is required by law to be deducted by the employer from the
compensation of an employee including the withheld tax is considered as part of
the employee's compensation and is deemed to be paid to the employee as
compensation at the time the deduction is made.
(9) Remuneration for services as employee of a nonresident alien

individual or foreign entity. The term "compensation" includes remuneration
for services performed by an employee of a nonresident alien individual, foreign
partnership or foreign corporation, whether or not such alien individual or foreign
entity is engaged in trade or business within the Philippines. Any person paying
compensation on behalf of a non-resident alien individual, foreign partnership, or
foreign corporation which is not engaged in trade or business within the
Philippines is subject to all provisions of law and regulations applicable to an
employer.
(10) Compensation for services performed outside the Philippines.

Remuneration for services performed outside the Philippines by a resident citizen
for a domestic or a resident foreign corporation or partnership, or for a
non-resident corporation or partnership, or for a non-resident individual not
engaged in trade or business in the Philippines shall be treated as compensation
which is subject to tax.
A non-resident citizen as defined in these regulations is taxable only on

income derived from sources within the Philippines. In general, the situs of the
income whether within or without the Philippines, is determined by the place
where the service is rendered.
(B) Exemptions from withholding tax on compensation. The following

income payments are exempted from the requirement of withholding tax on
compensation:
(1) Remunerations received as an incident of employment, as follows:
(a) Retirement benefits received under Republic Act under 7641 and those
received by officials and employees of private firms, whether individual or
corporate, under a reasonable private benefit plan maintained by the employer
which meet the following requirements:
(i) The plan must be reasonable;
(ii) The benefit plan must be approved by the Bureau;
(iii) The retiring official or employee must have been in the service
of the same employer for at least ten (10) years and is not less
than fifty (50) years of age at the time of retirement; and
(iv) The retiring official or employee should not have previously

availed of the privilege under the retirement benefit plan of the
same or another employer.
(b) Any amount received by an official or employee or by his heirs from

the employer due to death, sickness or other physical disability or for any cause
beyond the control of the said official or employee, such as retrenchment,
redundancy, or cessation of business. cdrep
The phrase "for any cause beyond the control of the said official or
employee" connotes involuntariness on the part of the official or employee. The
separation from the service of the official or employee must not be asked for or
initiated by him. The separation was not of his own making. Whether or not the
separation is beyond the control of the official or employee, being essentially a
question of fact, shall be determined on the basis of prevailing facts and
circumstances. It shall be duly established by the employer by competent evidence
which should be attached to the monthly return for the period in which the amount
paid due to the involuntary separation was made.
Amounts received by reason of involuntary separation remain exempt from

income tax even if the official or the employee, at the time of separation, had
rendered less than ten (10) years of service and/or is below fifty (50) years of age.
Any payment made by an employer to an employee on account of dismissal,

constitutes compensation regardless of whether the employer is legally bound by
contract, statute, or otherwise, to make such payment.
(c) Social security benefits, retirement gratuities, pensions and other

similar benefits received by residents or non-resident citizens of the Philippines or
aliens who come to reside permanently in the Philippines from foreign government
agencies and other institutions private or public;
(d) Payments of benefits due or to become due to any person residing in

the Philippines under the law of the United States administered by the United
States Veterans Administration;
(e) Payments of benefits made under the Social Security System Act of
1954 as amended; and
(f) Benefits received from the GSIS Act of 1937, as amended, and the
retirement gratuity received by government officials and employees.
(2) Remuneration paid for agricultural labor
(a) Remuneration for services which constitute agricultural labor and paid
entirely in products of the farm where the labor is performed is not subject to
withholding. In general, however, the term, "agricultural labor" does not include
services performed in connection with forestry, lumbering or landscaping.
(b) Remuneration paid entirely in products of the farm where the labor is
performed by an employee of any person in connection with any of the following
activities is excepted as remuneration for agricultural labor:
(i) The cultivation of soil;
(ii) The raising, shearing, feeding, caring for, training, or

management of livestock, bees, poultry, or wildlife; or
(iii) The raising or harvesting of any other agricultural or

horticultural commodity. The term "farm" as used in this
subsection includes, but is not limited to stock, dairy, poultry,
fruits and truck farms, plantations, ranches, nurseries ranges,
orchards, and such greenhouse and other similar structures as
are used primarily for the raising of agricultural or horticultural
commodities.
(c) The remuneration paid entirely in products of the farm where labor is
performed for the following services in the employ of the owner or tenant or other
operator of one or more farms is not considered as remuneration for agricultural
labor, provided the major part of such services is performed on a farm:
(i) Services performed in connection with the operation,

management, conservation, improvement, or maintenance of
any such farms or its tools or equipments; or
(ii) Services performed in salvaging timber, or clearing land brush

and other debris left by a hurricane or typhoon.
The services described in (i) above may include for example, services
performed by carpenters, painters, mechanics, farm supervisors, irrigation
engineers, bookkeepers, and other skilled or semi-skilled workers, which
contribute in any way to the conduct of the farm or farms, as such, operated by the
person employing them, as distinguished from any other enterprise in which such
person may be engaged. Since the services described in this paragraph must be
performed in the employ of the owner or tenant or other operator of the farm, the
exception does not extend to remuneration paid for services performed by
employees of a commercial painting concern, for example, which contracts with a
farmer to renovate his farm properties. cdasia
(d) Remuneration paid entirely in products of the farm where labor is

performed by an employee in the employ of any person in connection with any of
the following operations is not considered as remuneration for agricultural labor
without regard to the place where such services are performed:
(i) The making of copra, stripping of abaca, etc.;
(ii) The hatching of poultry;
(iii) The raising of fish;
(iv) The operation or maintenance of ditches, canals, reservoirs, or

waterways used exclusively for supplying or storing water for
farming purposes; and
(v) The production or harvesting of crude gum from a living tree or

the processing of such crude gum into gum spirits or turpentine
and gum resin, provided such processing is carried on by the
original producer of such crude gum.
(e) Remuneration paid entirely in products of the farm where labor is

performed by an employee in the employ of a farmer or a farmer's cooperative,
organization or group in the handling, planting, drying, packing, packaging,
processing, freezing, grading, storing or delivering to storage or to market or to
carrier for transportation to market, of any agricultural or horticultural commodity,
produced by such farmer or farmer-members of such organization or group, is
excepted as remuneration for agricultural labor. Services performed by employees
of such farmer or farmer's organization or group in handling, planting, drying,
packaging, processing, freezing, grading, storing, or delivering to storage or to
market or to carrier for transportation to market of commodities produced by
persons other than such farmer or members of such farmer's organization or group
are not performed "as an incident to ordinary farming operation".
All payments made in cash or other forms other than products of the farm
where labor is performed, for services constituting agricultural labor as explained
above, are not within the exception.
(3) Remuneration for domestic services. Remuneration paid for

services of a household nature performed by an employee in or about the private
home of the person by whom he is employed is not subject to withholding.
However, the services of household personnel furnished to an employee (except
rank and file employees) by an employer shall be subject to the fringe benefits tax
pursuant to Sec. 33 of the Code, as amended.
A private home is the fixed place of abode of an individual or family. If the

home is utilized primarily for the purpose of supplying board or lodging to the
public as a business enterprise, it ceases to be a private home and remuneration
paid for services performed therein is not exempted.
In general, services of a household nature in or about a private home

include services rendered by cooks, maids, butlers, valets, laundresses, gardeners,
chauffeurs of automobiles for family use.
The remuneration paid for the services above enumerated which are
performed in or about rooming or lodging houses, boarding houses, clubs, hotels,
hospitals or commercial offices or establishments is considered as compensation;
Remuneration paid for services performed as a private secretary, even if
they are performed in the employer's home is considered as compensation;
(4) Remuneration for casual labor not in the course of an employer's

trade or business. The term "casual labor" includes labor which is occasional,
incidental or regular. The expression "not in the course of the employer's trade or
business" includes labor that does not promote or advance the trade or business of
the employer.
Thus, any remuneration paid for labor which is occasional, incidental or

irregular, and does not promote or advance the employer's trade or business, is not
considered as compensation. cdasia
EXAMPLE: A's business is that of operating a sawmill. He employs B, a

carpenter, at an hourly wage to repair his home. B's work is irregular and he
spends, the greater part of two days in completing the work. Since B's labor is
casual and is not in the course of A's business, the remuneration paid for such
services is exempted.
Any remuneration paid for casual labor, that is, labor which is occasional,
incidental or irregular, but which is rendered in the course of the employer's trade
or business, is considered as compensation.
EXAMPLE: E is engaged in the business of operating a department store.

He employs additional clerks for a short period. While the services of the clerks
may be casual, they are rendered in the course of the employer's trade or business
and therefore the remuneration paid for such services is considered as
compensation.
Any remuneration paid for casual labor performed for a corporation is

considered as compensation;
(5) Compensation for services by a citizen or resident of the Philippines

for a foreign government or an international organization. Remuneration paid
for services performed as an employee of a foreign government or an international
organization is exempted. The exemption includes not only remuneration paid for
services performed by ambassadors, ministers and other diplomatic officers and
employees but also remuneration paid for services performed as consular or other
officer or employee of a foreign government or as a non-diplomatic representative
of such government.
(6) Damages. Actual, moral, exemplary and nominal damages received

by an employee or his heirs pursuant to a final judgment or compromise agreement
arising out of or related to an employer-employee relationship.
(7) Life Insurance. The proceeds of life insurance policies paid to the
heirs or beneficiaries upon the death of the insured, whether in a single sum or
otherwise, provided however, that interest payments agreed under the policy for
the amounts which are held by the insured under such an agreement shall be
included in the gross income.
(8) Amount received by the insured as a return of premium. The

amount received by the insured, as a return of premium or premiums paid by him
under life insurance, endowment, or annuity contracts either during the term or at
the maturity of the term mentioned in the contract or upon surrender of the
contract.
(9) Compensation for injuries or sickness. Amounts received through

Accident or Health Insurance or under Workmen's Compensation Acts, as
compensation for personal injuries or sickness, plus the amount of any damages
received whether by suit or agreement on account of such injuries or sickness.
(10) Income exempt under treaty. Income of any kind to the extent
required by any treaty obligation binding upon the Government of the Philippines.
(11) Thirteenth (13th ) month pay and other benefits.
(a) Thirteenth (13th) month pay equivalent to the mandatory one (1)
month basic salary of officials and employees of the
government, (whether national or local), including
government-owned or controlled corporations, and or private
offices received after the twelfth (12th) month pay; and
(b) Other benefits such as Christmas bonus, productivity incentive

bonus, loyalty award, gifts in cash or in kind and other benefits
of similar nature actually received by officials and employees
of both government and private offices.
The above stated exclusions (a) and (b) shall cover benefits paid or accrued
during the year provided that the total amount shall not exceed thirty thousand
pesos (P30,000.00) which may be increased through rules and regulations issued
by the Secretary of Finance, upon recommendation of the Commissioner, after
considering, among others, the effect on the same of the inflation rate at the end of
the taxable year.
(12) GSIS, SSS, Medicare and other contributions. GSIS, SSS, Medicare
and Pag-Ibig contributions, and union dues of individual employees.
SECTION 2.78.2. Payroll Period. The term "payroll period" means the
period of services for which a payment of compensation is ordinarily made to an
employee by his employer. It is immaterial that the compensation is not always
paid at regular intervals.
EXAMPLE: if an employer ordinarily pays the weekly wages of his

employees at the end of the week, but if for some reason a particular employee
receives payment of his salaries for the past week in the middle of the current
week and receives the remainder at the end of the same week, the payroll period is
still the calendar week; or if, instead, the employee is sent on a three (3)-week trip
by his employer and receives at the end of the trip a single compensation payment
for three (3)-week services, the payroll period is still the calendar week, and the
compensation payment shall be treated as though it were three (3) separate weekly
compensation payments. LLphil
For the purpose of determining the tax, an employee can have but one
payroll period with respect to the compensation paid by any one employer. Thus,
if an employee is paid a regular compensation for the weekly payroll and in
addition thereto is paid supplemental compensation (for example taxable bonuses)
determined with respect to a different period, the payroll period is the weekly
payroll period.
SECTION 2.78.3. Employee. The term "employee" is an individual

performing services under an employer-employee relationship. The term covers all
employees, including officers and employees, whether elected or appointed, of the
Government of the Philippines, or any political subdivision thereof or any agency
or instrumentality.
In general, the relationship of the employer and employee exists when the
person for whom services were performed has the right to control and direct the
individual who performs the services, not only as to the result to be accomplished
by the work but also as to the details and means by which the result is
accomplished. An employee is subject to the will and control of the employer not
only as to what shall be done, but how it shall be done. In this connection, it is not
necessary that the employer actually directs or controls the manner in which the
services are performed. It is sufficient that he has the right to do so.
The right to dismiss an employee is also an important factor indicating that

the person possessing that right is an employer. Other factors or characteristics of
an employer, which may not be necessarily present in every case, are furnishing
the tools and furnishing of a place to work, to the individual who performs the
services. In general, an individual is not considered an employee if he is subject to
the control or direction of another merely on to the result to be accomplished by
the work, and not on to the means and methods for accomplishing the result.
In general, individuals who follow an independent trade, business, or

profession, in which the offer their services to the public, are not employees.
The measurement, method or designation of compensation is also

immaterial if the relationship of employer and employee in fact exists.
No distinction is made between classes or grades of employees. Thus

superintendents, managers, and others belonging to similar levels are employees.
An officer of a corporation is an employee of the corporation. An individual,
performing services for a corporation, both as an officer and director, is an
employee subject to withholding on compensation, including director's fees.
SECTION 2.78.4. Employer. The term employer means any person for
whom an individual performs or performed any service, of whatever nature, under
an employer-employee relationship. It is not necessary that the services be
continuing at the time the wages are paid in order that the status of employer may
exist. Thus for purposes of withholding, a person for whom an individual has
performed past services and from whom he is still receiving compensation is an
"employee".
(A) Person for whom the services are or were performed does not have
control. The term "employer" also refers to the person having control of the
payment of the compensation in cases where the services are or were performed
for a person who does not exercise such control. For example, where
compensation, such as certain types of pensions or retirement pay, are paid by a
trust and the person for whom the services were performed has no control over the
payment of such compensation, the trust is deemed to be the "employer".
(B) Person paying compensation on behalf of a nonresident. The term

"employer" also means any person paying compensation on behalf of a
non-resident alien individual, foreign partnership, or foreign corporation, who is
not engaged in trade or business within the Philippines.
It is the responsibility of the employer to withhold, pay, or refund the tax

and furnish the statements required under these Regulations. The term "employer"
as defined in (A) and (B) above is intended to determine who is the withholding
agent.
As a matter of business administration, certain mechanical details of the

withholding process may be handled by representatives of the employer. Thus, in
the case of a corporate employer with branch offices, the branch manager or other
representative may actually, as a matter of internal administration, withhold the tax
or prepare the statements required under the law. Nevertheless, the legal
responsibility for withholding, paying and returning the tax and furnishing such
statements rests with the corporate employer.
An employer may be an individual, a corporation, a partnership, a trust, an

estate, a joint-stock company, an association, or a syndicate, group, pool, joint
venture, or other unincorporated organization, group or entity. A trust or estate,
rather than the fiduciary acting for or on behalf of the trust or estate, is generally
the employer.
The term "employer" embraces not only an individual and an organization

engaged in trade or business, but it also includes an organization exempt from
income tax, such as charitable and religious organizations, clubs, social
organizations and societes, as well as the Government of the Philippines, including
its agencies, instrumentalities, and political subdivisions.
(C) Compensation paid on behalf of two or more employers. If a

payment of compensation is made to an employee by an employer through an
agent, fiduciary, or other person who has the control, receipt, custody, or disposal
of, or pays the compensation payable by another employer to such employee, the
amount of tax required to be withheld on each compensation payment made
through such agent, fiduciary, or person shall, whether the compensation is paid
separately on behalf of each employer or paid in lump-sum on behalf of all such
employers, be determined based on the aggregate amount of such compensation
payment or payments in the same manner as if such aggregate amount had been
paid by one employer. Hence, the tax shall be determined based on the aggregate
amount of the compensation paid. prcd
In any such case, each employer shall be liable for the return and payment
of a pro-rata portion of the tax so determined in accordance with the ratio of the
amount contributed by each employer relative to the aggregate of such
compensation.
A fiduciary, agent, or other person acting for two or more employers may
be authorized to withhold the tax under these regulations with respect to the wages
of the employees of such employers. Such fiduciary, agent, or other person may
also be authorized to make and file returns of the tax withheld at source on such
compensation and to furnish the receipts required under these Regulations.
Application for the authorization to perform such act should be addressed to the
Commissioner or his duly authorized representative. If such authority is granted by
the Commissioner, all provisions of the law (including penalties) and regulations
prescribed in pursuance of the law applicable in respect of an employer for whom
such fiduciary, agent or other person acts shall remain subject to all provisions of
law (including penalties) and regulations prescribed in pursuance of the law
applicable in respect of employers.
SECTION 2.79. Income Tax Collected at Source on Compensation

Income.
(A) Requirement of Withholding. Every employer must withhold from

compensations paid, an amount computed in accordance with these regulations.
Provided, that no withholding of tax shall be required where the total
compensation income of an individual does not exceed the statutory minimum
wage or five thousand pesos (P5,000.00) monthly (sixty thousand pesos
(P60,000.00) a year), whichever is higher.
Employees whose total annual compensation, as determined in the

preceding paragraph, does not exceed P60,000.00 shall be given two options with
which to pay his income tax due to wit:
(1) His compensation income shall be subjected to withholding tax,

but he shall not be required to file the income tax return
prescribed in Sec. 51 of the Code (filing of an individual return)
except when covered by any of the situations enumerated in
Sec. 2.83.4 of these Regulations.
(2) His compensation income shall not be subject to a withholding

tax but he shall file his annual income tax return and pay the tax
due thereon, annually.
Where the employee has opted to have his compensation income subjected
to withholding so as to be relieved of the obligation of filing an annual income tax
return and paying his tax due on a lump sum basis, he shall execute a waiver in a
prescribed BIR form of his exemption from withholding which shall constitute the
authority for the employer to apply the withholding tax table provided under these
Regulations.
The employee who opts to file the Income Tax Return shall file the same
not later than April 15 of the year immediately following the taxable year.
(B) Computation of Withholding Tax on Compensation Income in

General. The procedures provided herein below shall govern the computation
of withholding tax on the taxable compensation income of the employees.
Provided, however, that taxable fringe benefits received by employees other than
the rank and file, as defined in the Labor Code of the Philippines, as amended,
shall be subject to a Fringe Benefits Tax, instead of the rates prescribed in the
Withholding Tax Tables pursuant to Sec. 24(A) of the Code, as amended (refer to
Sec. 2.79.D of these Regulations).
(1) Use of Withholding Tax Tables. In general, every employer making
payment of compensation shall deduct and withhold from such compensation a tax
determined in accordance with the prescribed new withholding tax tables effective
January 1, 1998 (Annex A) of these Regulations.
There are four (4) withholding tables prescribed in these regulations, as

follows:
(a) Monthly Tax Table to be used by employers using the

monthly payroll period;
(b) Semi-Monthly Tax Table to be used by employers using the

semi-monthly payroll period;
(c) Weekly Tax Table to be used by employers using the weekly

payroll period;
(d) Daily Tax Table to be used by employers using the daily

payroll period.
If the compensation is paid other than daily, weekly, semi-monthly or

monthly, the tax to be withheld shall be computed as follows:
(a) Annually use the annualized computation referred to in Sec.

2.79 (B)(5)(b) of these Regulations;
(b) Quarterly and semi-annually divide the compensation by

three (3) or six (6), respectively, to determine the average
monthly compensation. Use the monthly withholding tax table
to compute the tax, and the tax so computed shall be multiplied
by three (3) or six (6) accordingly.
(2) Components of the Withholding Tax Table.
(a) Each tax table is grouped into Tables A, B and C.
A Table for employees without dependent children

B Table for heads of family with dependent children
C Table for married employees with qualified dependent
children
b) The columns in the Tables reflect the following:
1st column reflects the exemption status of employee

represented by letter symbols. (refer to the explanation of the
legend of symbols in letter (d) below)
2nd column reflects the total amount of personal and

additional exemption, in pesos, to which an employee is
entitled.
(c) Column numbers 1 to 10 reflect the portion of the amount of

taxes to be withheld on the amount of compensation of the
employees. Every amount in all the columns within Tables A, B
and C represent the compensation level.
(d) Legend of symbols The symbols used in the new

withholding tax table represent the following:
Z Zero exemption for (a) employee with multiple employers

simultaneously, with respect to second, third, etc., employer and (b)
for employee who fails to file an application for registration (BIR
Form 1902) or an exemption certificate; (BIR Form 2305)
S Single, legally separated spouses/widow/widower without

any qualified dependent; Cdpr
ME Married employee who is not legally separated;
HF Head of the family who is either single/legally separated

spouse/widow or widower with a qualified dependent parent; sister or
brother; legitimate, recognized natural or legally adopted child; or a
qualified senior citizen as defined by these regulations pursuant to Sec.
2 of R.A. No. 7432.
In view however, of the promulgation of the Family Code which makes no

distinction between the spurious and natural child, an illegitimate child can now be
considered as a qualified dependent and qualifies the claimant to the status of head
of the family.
The numerals (1-4) affixed to the status symbols "ME" and HF" represent
the number of qualified legitimate, illegitimate, or legally adopted children;
Exemption means the amount of exemption in thousand pesos an

employee is entitled to claim as a deduction from gross compensation income in
accordance with the status and number of qualified dependent children.
(3) Steps to determine the amount of tax to be withheld:
Step 1. Use the appropriate tables for the payroll period; monthly
semi-monthly weekly or daily as the case may be.
Step 2. Determine the total monetary and non-monetary compensation

paid to an employee for the payroll period, segregating gross benefits which
includes thirteenth (13th) month pay, productivity incentives, Christmas bonus, and
other benefits received by the employee per payroll period. Gross benefits which
are received by officials and employees of public and private entities in the amount
of thirty thousand pesos (P30,000) or less shall be exempted from income tax and
from withholding tax.
Step 3. Segregate the taxable compensation from the non-taxable

income paid to the employee for the payroll period. The taxable income refers to
all remuneration paid to an employee not otherwise exempted by law from income
tax and consequently from withholding tax. The non-taxable income are those
which are specifically exempted from income tax by the Code or by other special
laws as listed in Sec. 2.78.1 (B) of these Regulations (e.g. benefits not exceeding
P30,000, non-taxable retirement benefits and separation pay).
Step 4. Segregate the taxable compensation income as determined in

Step 3 into regular taxable compensation income and supplementary compensation
income. Regular compensation includes basic salary, fixed allowances for
representation, transportation and other allowances paid to an employee per
payroll period. Supplementary compensation includes payments to an employee in
addition to the regular compensation such as commission, overtime pay, taxable
retirement pay, taxable bonus and other taxable benefits, with or without regard to
a payroll period.
Step 5. Fix the compensation level as follows:
(i) Determine the line (horizontal) corresponding to the status and

number of qualified dependent children using the appropriate
symbol for the taxpayer status.
(ii) Determine the column to be used by taking into account only

the total amount of taxable regular compensation income. The
compensation level is the amount indicated in the line and
column to which the regular compensation income is equal to or
in excess, but not to exceed the amount in the next column of
the same line.
Step 6. Compute the withholding tax due by adding the tax

predetermined in the compensation level indicated at the top of the column, to the
tax on the excess of the total regular and supplementary compensation over the
compensation level, which is computed by multiplying the excess by the rate also
indicated at the top of the same column. cdrep
(4) Sample Computations on the use of the Withholding Tax Table:
EXAMPLE I: Mr. A, single, with no qualified dependent receives P6,000 as

regular monthly compensation.
COMPUTATION: Using the monthly withholding tax table, the monthly

withholding tax is computed by referring to Table A line 2 of column 4 which
shows a tax of P208.33 on P4,167.00 plus 15% of the excess (P6,000.00 -
4,167.00 = P1,833.00)
Total taxable compensation P 6,000.00

Less: compensation level
(line A-2 Column 4) 4,167.00

P 1,833.00

Tax on P4,167.00 P 208.33
Tax on excess (P1,833.00 x 15%) 274.95

Monthly withholding tax P 483.28

EXAMPLE II: Mr. B, head of the family (with a qualified dependent

parent) receives P6,200.00 as monthly regular compensation and P800.00 as
supplementary compensation for January or a total of P7,000.00.
COMPUTATION: Using the monthly withholding tax table, the

withholding tax for January is computed by referring to Table A line 3 HF of
column 4 (fix compensation level taking into account only the regular
compensation income of P6,200.000) which shows a tax of P208.33 on P4,583.00
plus 15% of the excess (P7,000.00 - 4,583.00 = P2,417.00).

(line A-3 Column 4) 4,583.00

Excess P 2,417.00

Tax on (P4,583.00) P 208.33
Tax on excess (P2,417.00 x 1 5%) 362.55

Withholding tax for January P 570.88

EXAMPLE III: Mrs. C, married with two (2) qualified dependent children
receives P5,500.00 as regular monthly compensation. Mr. C, her husband is also
employed and claims for the additional exemptions.
COMPUTATION: Using the monthly withholding tax table, the

withholding tax due is computed by referring to table A line 4 ME of column 4
which shows a tax of P208.33 on P5,167.00 plus 15% of the excess (P5,500.00 -
P5,167.00 = P333.00).

(Line A- 4 Column 4) 5,167.00

Excess P 333.00

Tax on P5,167,00 P 208.33
Tax on excess (P333.00 x 15%) 49.95

Monthly withholding tax P 258.28

EXAMPLE IV: Mr. D, married with two (2) qualified dependent children
receives P3,550.00 as regular semi-monthly compensation. Mrs. D, his wife is also
employed. Mr. D did not waive his right in favor of the wife to claim for the
additional exemptions.
COMPUTATION: Using the semi-monthly withholding tax tables, the

withholding tax due is computed by referring to Table C line 2 ME 2 of column 4
which shows a tax of P104.17 on P3,250.00 plus 15% of the excess (P3,550.00 -
3,250.00 = P300.00)
Total taxable compensation P3,550.00

Less: compensation level (line C-2 Column 4) 3,250.00

Excess P 300.00

Tax on P3,250.00 P 104.17
Tax on excess (P300.00 x 15%) 45.00

Semi-monthly withholding tax P 149.17

EXAMPLE V: Mr. E, married with two (2) qualified dependent children
receives P3,300.00 as regular semi-monthly compensation. Mrs. E, his wife is not
employed.
COMPUTATION: Using the semi-monthly withholding tax tables, the

withholding tax due is computed by referring to Table C line 2 ME2 of Column 4
which shows a tax of P104.17 on P3,250 plus 15% of the excess (3,300 - 3,250 =
P50.00)
Total taxable compensation P3,300.00

Less: compensation level (Line C-2 Column 4) 3,250.00

Excess P 50.00

Tax on P3,250.00 P 104.17
Tax on excess (P50.00 x 15%) 7.50

Semi-monthly withholding P 111.67

EXAMPLE VI: On June, 1998, Mr. F, single receives P30,000.00 as regular

monthly salary and half of his 13th month pay amounting to P15,000.00 plus other
benefits such as productivity pay of P10,000.00 and loyalty pay of P6,000.00.
Compute the withholding tax of Mr. F for the month of June, 1998.
COMPUTATION:
Regular Wage P30,000.00

Gross Benefits:
13th month pay P15,000
Productivity 10,000
Loyalty pay P6,000

Total Gross Benefits P 31,000.00

Add Taxable Gross Benefits (P31,000 - 30,000 = P1,000)* 1,000.00

Total Taxable Compensation Income P31,000.00
Less Compensation level 22 500.00

Excess P 8,500.00

Tax on P22,500 (line A2, col. 7) P 4,166.67
Tax on excess (P8,500.00 x 30%) 2,550.00

Withholding tax for the month of June P 6,716.67

* gross benefit of P31,000 less the maximum total exemptions of the gross benefit
of P30,000
(5) Use of Exceptional Computations
(a) Cumulative average method. If in respect of a particular employee,

the regular compensation is exempt from withholding because the amount thereof
is below the compensation level, but supplementary compensation is paid during
the calendar year; or the supplementary compensation is equal to or more than the
regular compensation to be paid; or the employee was newly hired and had a
previous employer/s within the calendar year, other than the present employer
doing this cumulative computation, the present employer shall determine the tax to
be deducted and withheld in accordance with the cumulative average method
provided hereunder:
Step 1. Add the amount of taxable regular and supplementary

compensation to be paid to an employee for the payroll period subject of
computation to the sum of the taxable regular and supplementary compensation
since the beginning of the current calendar year including the compensation paid
by the previous employers within the same calendar year, if any;
Step 2. Divide the aggregate amount of compensation computed in step

1 by the number of payroll period to which the amount relates;
Step 3. Compute the tax to be deducted and withheld on the cumulative

average compensation determined in Step No. (2) in accordance with the
withholding tax table; cdphil
Step 4. Multiply the tax computed in Step No. (3) by the number of
payroll period to which it relates;
Step 5. Determine the excess, if any, of the amount of tax computed in

Step No. (4) over the total amount of tax already deducted and withheld from the
beginning payroll period to the last payroll period, including that withheld by the
previous employer/s within the calendar year, if any. The excess, as computed,
shall be deducted and withheld from the compensation to be paid for the last
payroll period of the current calendar year.
The cumulative average method, once applicable to a particular employee at

any time during the calendar year, shall be the same method to be consistently
used for the remaining payroll period/s of the same calendar year.
EXAMPLE VII: (Regular monthly compensation is exempt from

withholding but supplementary compensation is paid during the calendar year)
Mr. G, married with three (3) qualified dependent children whose spouse is not
employed received the following compensation:
Month Regular Supplementary Total

Compensation Compensation Compensation
Jan. P4,500.00 P1,750.00 P6,250.00

Feb. 4,500.00 1,750.00 6,250.00
Mar. 4,400.00 1,500.00 5,500.00
COMPUTATION:
1. For Jan. - P6,250.00 + 0 = P 6,250.00

For Feb. - P6,250.00 + 6,250.00 = P12,500.00
For Mar. - P6,250 + 6,250 + 5,500 = P18,000.00
2. For Jan. - P6,250/1 = P 6,250.00

For Feb. - P12,500/2 = P 6,250.00
For Mar. - P18,000/3 = P 6,000.00
3. For January
Tax on P5,500.00 (Line C.3, Col. 3) P 41.67
Tax on excess (P750.00 x 10%) 75.00

Tax on P6,250.00 P 116.67

For February
Tax on P5,500 (line C.3, col. 3) P 41.67
Tax on excess (P750.00 x 10%) 75.00

Tax on P6,250 P 116.67

For March
Tax on P5,500 (line C.3, col. 3) P 41.67
Tax on excess (P500.00 x 15%) 50.00

Tax on P6,000.00 P 91.67

4. For Jan. - P116.67 x 1 = P 116.67

For Feb. - P116.67 x 2 = P 233.34
For Mar. - P91.67 x 3 = P 275.01
5. For Jan. - P116.67 - 0 = P 116.67

For Feb. - P233.34 - 116.67 = P 116.67
For Mar. - P275.01 - 233.34 = P 41.67
EXAMPLE VIII: (Supplemental compensation is equal to or more than the

regular compensation) Mr. H, married with one (1) qualified dependent and
whose spouse is also employed received the following compensation. Mr. H
waived his right to claim for the additional exemptions in favor of his wife.
Month Regular Supplementary Total

Compensation Compensation Compensation
Jan. P3,000.00 P3,000.00 P6,000.00

Feb. 3,000.00 3,500.00 6,500.00
Mar. 3,000.00 5,000.00 8,000.00
COMPUTATION:
1. For Jan. - P6,000.00 + 0 = P 6,000.00

For Feb. - P6,000.00 + 6,500.00 = P12,500.00
For Mar. - P8,000.00 + 6,000.00 + 6,500.00 = P20,500.00
2. For Jan. - P6,000/1 = P 6,000.00

For Feb. - P12,500/2 = P 6,250.00
For Mar. - P20,500/3 = P 6,833.33
3. For January
Tax on P5,167.00 (line A4, col. 4) P 208.33
Tax on excess (P833.00 x 15%) P 124.95

Tax on P6,000.00 P 333.28

For February
Tax on P5,167.00 (line A4, col. 4) P 208.33
Tax on excess (P1,083.00 x 15%) P 162.45

Tax on P6,250.00 P 370.78

For March
Tax on P5,167.00 (line A 4 col. 4) P 208.33
Tax on excess (P1,666.33 x 15%) P 249.95

Tax on P6,833.33 P 458.28

4. For Jan. - P333.28 x 1 = P 333.28

For Feb. - P370.78 x 2 = P 741.56
For Mar. - P458.28 x 3 = P 1,374.84
5. For Jan. - P333.28 - 0 = P 333.28

For Feb. - P741.56 - 333.28 = P 408.28
For Mar. - P1,374.84 - 741.56 = P 633.28
EXAMPLE IX: (Computation of monthly withholding tax for a new

employee with previous employer during the year) Ms. I, single was hired by X
Co. on July, 1998. Her total taxable income per month is P10,000.00. She was
previously employed by W Co. from January to June with a monthly taxable
income of P6,000.00. Per Form No. 2316 (Certificate of Income Tax Withheld on
Compensation) issued by the previous employer, which was presented by Ms. I to
her present employer, the total tax withheld is P2,899.68. In computing for the tax
withheld on the compensation of Ms. I starting the month of July, X Co. shall use
the cumulative average method, as follows: llcd
Present Total Total

Compensation Previous Taxable
Month Income Income Income
JULY 10,000.00 36,000.00 46,000.00
AUG 10,000.00 10,000.00
SEPT 10,000.00 10,000.00
OCT 10,000.00 10,000.00
NOV 10,000.00 10,000.00
DEC 10,000.00 10,000.00

60,000.00 36,000.00 96,000.00

COMPUTATION:
Step 1
For July 36,000 +10,000 = 46,000.00
For August 46,000 + 10,000 = 56,000.00
For September 46,000 + 10,000 + 10,000 = 66,000.00
For October 46,000 + 10,000 + 10,000 + 10,000 = 76,000.00
For November 46,000 + 10,000 + 10,000 + 10,000 + 10,000 = 86,000.00
Step 2
For July 46,000/7 = 6,571.43
For August 56,000/8 = 7,000.00
For September 66,000/9 = 7,333.33
For October 76,000/10 = 7,600.00
For November 86,000/11 = 7,818.18
Step 3
For July P6,571.43

Tax on P4,167 = P 208.33
Tax on excess (2,404.43 x 15%) = 360.66

Tax on P6,571.43 = P568.99

For August P7,000.00

Tax on P4,167 = P208.33
Tax on excess (P2,833.00 x 15%) = 424.95

Tax on P7,000 = P633.28

For September P7,333.33

Tax on P4,167 = P208.33
Tax on excess (P3,166.33 x 15%) = 474.95

Tax on P7,333.33 = P683.28

For October P7,600.00

Tax on P7,500 = P708.33
Tax on excess (P100 x 20%) = 20.00

Tax on P7,600 = P728.33

For November P7,818.18

Tax on P7,500 = P708.33
Tax on excess (P318.18 x 20%) = 63.64

Tax on P7,818.18 = P771.97

Step 4
For July P568.99 X 7 = P3,982.93
For August P633.28 X 8 = P5,066.24
For September P683.28 X 9 = P6,149.52
For October P728.33 X 10 = P7,283.30
For November P771.97 X 11 = P8,491.67
Step 5
For July P3,982.93 - 2,899.68 = P1,083.26
For August P5,066.24 - 3,982.93 = P1,083.31
For Sept. P6,149.52 - 5,066.24 = P1,083.28
For October P7,283.30 - 6,149.52 = P1,133.78
For Nov. P8,491.67 - 7,283.30 = P1,208.37
(b) Annualized withholding tax method. (i) When the

employer-employee relationship is terminated before the end of the calendar year;
and (ii) when computing for the year-end adjustment, the employer shall determine
the amount to be withheld from the compensation on the last month of
employment or in December of the current calendar year in accordance with the
following procedures:
Step 1. Determine the taxable regular and supplementary compensation

paid to the employee for the entire calendar year. Refer to Steps 2 to 5 of Sec. 2.79
(B)(1)(b) of these Regulations, using as basis the compensation received for the
calendar year. cdphil
Step 2. If the employee has previous employment/s within the year, add
the amount of taxable regular and supplementary compensation paid to the
employee by the previous employer doing the annualized computation to the
taxable compensation income received from previous employer/s during the
calendar year:
(i) When the employer-employee relationship is terminated before

December The taxable regular and supplementary
compensation income shall be the amount paid since the
beginning of the current calendar year to the termination of
employment.
(ii) Year-end adjustment The taxable regular and supplementary

compensation income shall be the amount paid since the
beginning of the current calendar year to December.
(iii) Taxable fringe benefits received by employees holding

managerial or supervisory positions shall be subject to a final
fringe benefit tax as prescribed in Section 2.79 (D) of these
Regulations. Hence, the same shall not form part of the taxable
supplementary compensation, of managers and supervisors,
subject to the withholding tax tables.
Step 3. Deduct from the aggregate amount of compensation computed

in Step No. (2) the amount of the total personal and additional exemptions of the
employee.
Step 4. Deduct the amount of premium payments on Health and/or

Hospitalization Insurance of employees who have presented evidence that they
have paid during the taxable year premium payments (the deductible amount shall
not exceed P2,400 or P200 per month whichever is lower) and that their family's
total gross income does not exceed P250,000 for the calendar year. For purposes
of substantiating the claim of insurance expense, the policy contract shall be
presented to the employer together with the original official receipt of the premium
payment, in addition to the documents which will be prescribed by the BIR in a
separate regulation to determine the aggregate of his family income.
Total family income includes primary income and other income from
sources received by all members of the nuclear family, i.e., father, mother,
unmarried children living together as one household, or a single parent with
children. A single person living alone is considered as a nuclear family.
The spouse claiming the additional exemptions for the qualified dependent
children shall be the same spouse to claim the deductions for premium payments.
Step 5. Compute the amount of tax on the difference arrived at in Step

4, in accordance with the schedule provided in Sec. 24 (A) of the Code, as follows:
Over But Not Amount Rate Of Excess

Over Over
not over 10,000 5%

10,000 30,000 500+10% 10,000
30,000 70,000 2,500+15% 30,000
70,000 140,000 8,500+20% 70,000
140,000 250,000 22,500+25% 140,000
250,000 500,000 50,000+30% 250,000
500,000 over 125,000+34% 500,000
(33% in 1999)
(32% in 2000 and thereafter)
Step 6. Determine the deficiency or excess, if any, of the tax computed

in Step 5 over the cumulative tax already deducted and withheld since the
beginning of the current calendar year. The deficiency tax (when the amount of tax
computed in Step 5 is greater than the amount of cumulative tax already deducted
and withheld or when no tax has been withheld from the beginning of the calendar
year) shall be deducted from the last payment of compensation for the calendar
year. If the deficiency tax is more than the amount of last compensation to be paid
to an employee, the employer shall be liable to pay the amount of tax which cannot
be collected from the employee. The obligation of the employee to the employer
arising from the payment by the latter of the amount of tax which cannot be
collected from the compensation of the employee is a matter of settlement between
the employee and employer.
The excess tax (when the amount of cumulative tax already deducted and
withheld is greater than the tax computed in Step 5) shall be credited or refunded
to the employee not later than January 25 of the following year. However, in case
of termination of employment before December, the refund shall be given to the
employee at the payment of the last compensation during the year. In return, the
employer is entitled to deduct the amount refunded from the remittable amount of
taxes withheld from compensation income in the current month in which the
refund was made, and in the succeeding months thereafter until the amount
refunded by the employer is fully repaid.
EXAMPLE X: (Use of annualized computation when employer-employee

relationship was terminated before December) Mr. X, head of the family with a
qualified dependent brother receives P8,000 as monthly regular compensation
starting January 1, 1998. On June 1, 1998, he filed his resignation effective June
30, 1998. The tax withheld from January to May was P3,624.65.
COMPUTATION: (To be done before payment of the compensation for

June 1998):
Total compensation received from

January 1 to May 31, 1998 P40,000.00
Add: Compensation to be received on June 8,000.00

Gross compensation Jan-June P48,000.00
Less: Personal Exemption 25,000.00

Net Taxable Compensation P23,000.00

Tax Due* P1,800.00

Less: Tax Withheld from Jan to May 3,624.00

To be refunded to Employee Mr. X (P1,824.65)

* Tax on P10,000.00 P 500.00

Tax on excess (P13,000 x 10%) 1,300.00

Tax on P36,000 P 1,800.00

EXAMPLE XI. (Year-end adjustments computation) For taxable year

1998, Asian Mfg. has the following employees:
1. Mr. K, married with 2 qualified dependent children who

received the following compensation for the year:
Basic Monthly Salary P45,000

Overtime Pay for November P 5,000
Thirteenth Month pay P45,000
Other Benefits P12,000
2. Mr. L, married, whose wife is also employed, with two

dependent children. The second child was born in December.
He received for the year, the following:

Thirteenth Month Pay P6,500
Other Benefits P6,000
3. Ms. M, single, who was hired in July received the following:

Thirteenth Month Pay P20,000
Monthly Salary from Previous Employer (January-June) P 6,000
She paid for the year an annual premium on health and

hospitalization insurance amounting to P2,400.00.
4. Mrs. N, married, whose husband is also working received the
following:

Thirteenth Month Pay (50%) P17,500
She resigned effective, July 30, 1998
COMPUTATION OF WITHHOLDING TAX FOR DECEMBER:
1. Mr. K
Received
Compensation for the year Non-Taxable Taxable
Basic Salary P540,000 P540,000

Overtime (Nov.) 5,000 5,000
13th month pay 45,000 30,000 15,000
Other benefits 12,000 12,000

Totals P602,000 P30,000 P572,000
Less: Personal and additional exemptions 48,000

Net taxable compensation P 524,000

Tax due* P133,160.00

Less: Tax w/held from previous months (Jan-Nov.) 130,788.79

Tax to be withheld for December P 2,371.21

* Tax Due is computed by using the rates prescribed in Sec. 24 (A), NIRC
(refer to schedule on page 43 of these regulations)
2. Mr. L
Received
Compensation for the year Non-Taxable Taxable
Basic Salary P 78,000 P78,000.00

13th month pay 6,500 P6,500

Totals P90,500 P12,500 P 78,000.00
Less: Personal and additional exemptions 48,000.00

Net taxable compensation P 30,000.00

Tax due P 2,500.00

Less: Tax withheld from previous month (Jan-Nov.) 2,291.63

Amount to be withheld for December P 208.37

3. Ms. M. Single Computation of withholding tax for December
Compensation from previous employer (Jan. to June) P 36,000.00

Compensation from present employer (July to Dec) 120,000.00

Total Taxable Compensation (Jan. to Dec.) P156,000.00
Less: Personal and additional exemptions P20,000.00
Premium payments on health &
hospitalization insurance 2,400.00 22,400.00

Net Taxable Compensation P133,600.00

Tax Due P 21,220.00
Less: Taxes withheld
*Previous employer P2,899.68
**Present employer 15,591.98 18,491.66

Amount of taxes withheld for the month of December P 2,728.34

* Refer to Certificate of Income Tax Withheld on Compensation issued by

previous employer.
** Taxes withheld from July to December computed by the present employer

using the cumulative computation.
4. Mrs. N married (computation of tax upon resignation):
Total compensation
Received for the year Non-Taxable Taxable
Basic Salary P245,000 P245,000

13th month pay 17,500 P17,500

P268,500 P23,000 P245,000

Less: Personal and additional exemptions 32,000

Net taxable compensation income P213,000

Tax due (Jan. to July 30) P40,750.00

Less Tax withheld (Jan. to June) 45,700.02

Over withheld Tax to be Refunded in the month of July P(4,950.02)

The annualized computation done for each employee shall be reflected by

the employer at the alphabetical list attached to the Form No. 1604.
(3) If the compensation is paid other than daily, weekly, semi-monthly or

monthly, compute the tax to be deducted and withheld as follows:
a) Annually refers to computation on annualized income;
b) Quarterly and semi-annually divide the compensation by

three (3) or six (6), respectively, to determine the average
monthly compensation. Use the monthly withholding tax table
to compute the tax, and the tax so computed shall be multiplied
by three (3) or six (6), accordingly; LLjur
c) Bi-weekly divide the compensation by two (2) to determine

the average weekly compensation. Use the weekly withholding
tax table to compute the tax, and the tax so computed shall be
multiplied by two (2);
d) Miscellaneous if compensation is paid irregularly, or for a

period other than those mentioned above, divide the
compensation by the number of days from last payment to date
of payment (excluding Sundays and holidays). Use the daily tax
table, the tax so computed shall be multiplied by the number of
days.
(C) Computation of Withholding Tax on Salaries and Benefits Received by

Employees other than rank and file. The procedures provided herein below
shall govern the computation of withholding tax on the taxable compensation
income of employees other than the rank and file pursuant to Sec. 2.79 (B) of these
regulations.
(1) Determine the total monetary and non-monetary compensation,

segregating gross benefits which includes thirteenth (13th) month pay, productivity
incentives, Christmas bonus and fringe benefits received by the employee per
payroll period. When computing under the annualized computation, the total
monetary and non-monetary compensation shall be that received for the calendar
year. Gross benefits received by officials and employees of public and private
entities shall be exempted from income tax and from withholding tax; provided
that the amount of exemption shall not exceed thirty thousand pesos (P30,000); llcd
(2) Segregate the taxable from the non-taxable compensation (excluding

the fringe benefits) paid to the employee. The taxable income refers to all
remuneration paid to an employee not otherwise exempted by law from income tax
and consequently from withholding tax. The non-taxable income are those which
are specifically exempted from income tax by the Code or other special laws as
listed in Sec. 2.78.1 (B) of these Regulations (e.g., benefits not exceeding P30,000,
non-taxable retirement benefits and separation pay);
(3) Segregate the taxable fringe benefit and subject the same to
withholding pursuant to Subsection D of these section of the Regulations;
(4) Compute withholding tax on the taxable regular and supplementary

compensation in accordance with the procedures prescribed in Sec. 2.79(B)(1)(b)
of these regulations, for purposes of withholding per payroll period; and Sec.
2.79(B)(2) for purposes of computing under the cumulative average method or for
the year-end adjustment.
(D) Computation of Withholding Tax on Fringe Benefit.
(1) Final withholding tax on Fringe Benefits paid to employees other than
rank and file. There shall be imposed a final tax of 34% beginning January 1,
1998, 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and
thereafter, on the grossed-up monetary value of fringe benefits pursuant to Sec. 33
of the Code and its implementing regulations, granted or furnished by the
employer to his employees (except rank and file employees) unless the fringe
benefit is required by the nature of or necessary to the trade, business or profession
of the employer, and when the fringe benefit is for the convenience and advantage
of the employer.
The fringe benefit tax shall be paid by the employer in the same manner as
provided in Sec. 2.58 of these Regulations. It shall not form part of the gross
income of the employee. The imposition of the fringe benefits tax should be the
subject of a separate set of rules and regulations which shall be issued for the
purpose.
(2) Grossed-up monetary value of Fringe Benefit.
(a) In general the grossed-up monetary value of the fringe benefit shall be
determined by dividing the monetary value of the fringe benefit by sixty six
percent (66%) in 1998; sixty seven percent (67%) in 1999; and sixty eight percent
(68%) in 2000 and thereafter.
(b) The grossed-up monetary value of fringe benefits furnished to

employees and which are taxable under subsections B, C, D, and E of Section 25
of the Code shall be determined by dividing the monetary value of the fringe
benefit by the difference between one hundred percent (100%) and the applicable
rates of income tax prescribed on the aforesaid sub-sections of Section 25, to wit:
cdasia
Subsection (B) Twenty-five percent on income derived from

sources within the Philippines by a non-resident alien individual not engaged
in trade or business in the Philippines.
Subsection (C) Fifteen percent (15%) on income of an alien

individual employed by regional or area headquarters of a multinational
company or regional operating headquarters of a multinational company,
including any of its Filipino employees employed and occupying the same
position as those of its aforesaid alien employees.
Subsection (D) Fifteen percent (15%) on income of an alien

individual employed by an offshore banking unit of a foreign bank established
in the Philippines, including any of its Filipino employees employed and
occupying the same position as those of its aforesaid alien employees.
Subsection (E) Fifteen percent (15%) on the income of an alien

individual employed by a foreign service subcontractor engaged in petroleum
operations in the Philippines, including any of its Filipino employees
employed and occupying the same position as those of its aforesaid alien
employees.
(3) Non-taxable Fringe Benefits. The following fringe benefits are not
subject to the fringe benefits tax.
(a) Fringe benefits paid to rank and file employees. Fringe

benefits furnished or granted to rank and file employees shall
form part of the employees gross compensation income subject
to the withholding tax table on compensation under Section
2.79 (B) of these Regulations.
(b) Fringe benefits which are authorized and exempted from

income tax and consequently from withholding tax under the
Code, as amended, or under any special law.
(c) Contributions of the employer for the benefit of the employee to

retirement, insurance and hospitalization benefit plans.
(d) De minimis benefits. For purposes of determining whether the

fringe benefit shall be considered payments of de minimis
benefits, the employer shall submit a written representation to
the Commissioner for the issuance of a ruling taking into
account the peculiar nature and special need of the said
employer's trade, business or profession.
The term "de minimis benefits" which is exempt from the fringe benefit tax
shall, in general, be limited to facilities or privileges (such as entertainment,
Christmas party and other cases similar thereto; medical and dental services; or the
so-called courtesy discount on purchases), furnished or offered by an employer to
his employees, provided such facilities or privileges are of relatively small value
and are offered or furnished by the employer merely as a means of promoting the
health, goodwill, contentment, or efficiency of his employees. LLpr
(E) Computation of Withholding Tax on Compensation Paid to Alien

Employees of Certain Employers. There shall be imposed a final withholding
tax of fifteen percent (15%) on the salaries, annuities, compensation, remuneration
and other emoluments such as honoraria and allowances paid to its alien
employees occupying managerial and technical positions and Filipino employees
occupying similar positions by the following employers:
(1) Area or regional headquarters of multinational corporations and

regional operating headquarters under Sec. 25 (C);
(2) Offshore banking units under Sec. 25 (D) and FCDU;
(3) Petroleum service contractors and sub-contractors under Sec. 25

(E) of the Code.
(F) Requirement for Deductibility. The provisions of Sec. 2.58.5 of

these Regulations shall apply.
(G) Tax Paid by Recipient. The provisions of Sec. 2.58.6 of these

Regulations shall apply.
(H) Non-deductibility of Tax and Credit for Tax Withheld. The tax
deducted and withheld at source on compensation income shall neither be allowed
as a deduction from the employer's gross income nor from the recipient's gross
compensation income. The entire amount of the compensation from which the tax
is withheld shall be included in gross income to be reported in the return required
to be made by the recipient of the income without deduction for such tax. The
creditable tax withheld at source, however, is allowable as a credit against the tax
imposed by the NIRC to the recipient of the income. Any excess of the tax
withheld at source, over the tax ascertained to be due on the income tax return
shall be refunded or automatically credited, at the taxpayer's option, to the
recipient of the income. Such refund or credit shall be without prejudice to
whatever adjustments may be proper after field investigation or upon information
relative to the taxpayer's income tax liability under the main provisions of the
Code, as amended. If the tax has actually been withheld at source, a credit or a
refund shall be made to the recipient of the income even though such withheld tax
has not been paid to the government by the employer. For the purpose of the
credit, the recipient of the income is the person subject to tax, on whose
compensation the tax was withheld. cdtai
Any excess of the tax which was withheld on compensation over the tax
due from the taxpayer shall be returned not later than July 15 of the following
year. Refunds made after such time shall earn interest at the rate of six percent
(6%) per annum, starting after the lapse of the three month period up to the date
when the refund is made.
Refunds shall be made upon warrants drawn by the Commissioner or by his

authorized representative without the necessity of counter-signature by the
Chairman, Commission on Audit or the latter's duly authorized representative as an
exception to the requirement prescribed by Section 49, Chapter 8, Subtitle B, Title
I of Book V of Executive Order No. 292, otherwise known as the Administrative
Code of 1987.
(I) Right to claim Withholding Exemptions. An employee receiving

compensation shall be entitled to withholding exemptions as provided in the Code,
as amended. In order to receive the benefit of such exemptions, the employee must
file the Application for Registration (BIR Form No. 1902), upon employment and
a Withholding Compensation and Exemption Certificate (Form No. 2305), in case
of updates on changes in his exemptions. The withholding exemptions to which an
employee is entitled depends upon his status as single, married, head of the family
and the number of dependents qualified for additional exemptions. Each employee
shall be allowed to claim the following amount of exemptions, with respect to
compensation paid on or after January 1, 1998.
(1) Personal and additional exemptions.
(a) Basic personal exemptions.
(i) For single individual or married individual judicially decreed as

legally separated with no qualified dependents, the amount of
personal exemption allowed is twenty thousand pesos
(P20,000.00);
(ii) For each legally married employee, the amount of personal

exemption allowed is thirty two thousand pesos (P32,000.00).
A married individual deriving income within the Philippines
whose spouse is unemployed or is a non-resident citizen
deriving income from foreign sources, shall be entitled to a
personal exemption of thirty two thousand pesos (P32,000.00)
only;
(iii) For head of a family, the amount of personal exemption allowed

is twenty five thousand pesos (P25,000.00). Head of the family
means an unmarried or legally separated man or woman with
one or both parents or one or more brothers or sisters whether
of the whole or half blood or with one or more legitimate or
illegitimate, recognized natural or legally adopted children
living with and dependent upon him for their chief support,
where such brothers or sisters or children are not more than
twenty one (21) years of age, unmarried and not gainfully
employed or where such children, brothers, or sisters,
regardless of age are incapable of self-support because of
mental or physical defect. The term also includes an unmarried
or legally separated man or woman who is the benefactor of a
qualified senior citizen.
A senior citizen is any resident citizen of the Philippines

of at least sixty (60) years old, including those who have retired
from both government offices and private enterprises, and has
an income of not more than Sixty thousand pesos (P60,000) per
annum subject to the review of the National Economic
Development Authority (NEDA) every three years (definition
taken from Republic Act No. 7432).
(b) Additional exemptions for taxpayer with dependents. A married

individual or a head of family shall be allowed an additional exemption of eight
thousand pesos (P8,000) for each qualified dependent child, provided that the total
number of dependents for which additional exemptions may be claimed shall not
exceed four (4) dependents. The additional exemptions for qualified dependent
children shall be claimed by only one of the spouses in the case of married
individuals. LLpr
A dependent means a legitimate, illegitimate or legally adopted child

chiefly dependent upon and living with the taxpayer if such dependent is not more
than twenty-one (21) years of age, unmarried and not gainfully employed or if
such dependent, regardless of age, is incapable of self-support because of mental
or physical defect.
The husband shall be the proper claimant of the additional exemption for
qualified dependent children unless he explicitly waives his right in favor of his
wife in the application for registration (BIR Form 1902) or in the withholding
exemption certificate (BIR Form 2305). Provided, however, that where the spouse
of the employee is unemployed or is a non-resident citizen deriving income from
foreign sources, the employed spouse within the Philippines shall be automatically
entitled to claim the additional exemptions for children.
SECTION 2.79.1. Application for Registration for Individuals Earning

Compensation Income (BIR Form No. 1902). The application for registration of
employees shall be accomplished by both employer and employee relating to the
following information and other requirements:
(A) Employee.
(1) Name/Taxpayer's Identification Number (TIN)/Address of

employee/other information required by the form;
(2) Status of employee whether SINGLE/legally separated/widow or

widower with no dependent child, married, or head of the family;
(3) Status of spouse of the employee. If the employee is legally

married, the Name/TIN, if any, of the spouse and whether said spouse is
employed, unemployed, employed abroad, or is engaged in trade or business
should be indicated on the application;
(4) Qualified dependents. Name and date of birth of qualified

dependent/s (children, parent/s, brother/s, sister/s or senior citizens);
(5) Claimant of exemption for children. The husband is the proper

claimant of additional exemptions for qualified children. However, the wife shall
claim full additional exemption for children in the following cases:
(a) Husband is unemployed;
(b) Husband is a non-resident citizen deriving income from foreign

sources;
(c) The husband waives his right to claim the exemptions of

children (waiver should be for all children) in a sworn
statement to be attached to his application form for registration
(1902) and that of his wife's, in accordance with the procedures
prescribed in this Section;
(6) Required forms and attachments. Upon filing the Application for
registration (BIR Form No. 1902), the taxpayer is required to attach any of the
following documents to establish the status of the taxpayer, if applicable, to the
application:
(a) Marriage contract;
(b) Court decision of legal separation;
(c) Birth Certificate of each qualified dependent brother, sister or

child;
(d) Certificate of employment of the husband if he is working

abroad;
(e) Waiver of exemptions of children by the husband in case wife

is claiming the additional exemptions of the children;
(f) Waiver from exemption on withholding tax of taxpayers whose

total compensation income in a year does not exceed
P60,000.00.
(g) Medical Certificate of dependent brother, sister or child, if

physically or mentally incapacitated;
(h) Court decision of legal adoption of children;
(i) Death certificate;
(j) Current certificate of income tax exemption of qualified senior

citizen;
(k) Other documentary evidence, where the above documents are

not available.
(7) Concurrent multiple employments. An employee who is employed
concurrently by two or more employers within the same period of time during the
taxable year shall file the Application (BIR Form No. 1902) with his main
employer (employer paying the higher/est wage) and shall furnish a copy of the
duly received Application with his secondary employers (2nd, 3rd, etc. employers).
The employed husband and wife shall each file a separate application with their
respective employers;
(8) Successive multiple employment. An employee who transferred to

another employer during the taxable year, shall furnish his new Employer with an
Exemption Certificate (Form No. 2305) indicating therein his previous
employments during the taxable year (name of employer/s, address/s, TIN/s and
the date/s of his separation) and attach to the said certificate, a copy of the
Certificate of Income Tax Withheld on Compensation (BIR Form No. 2316) for
the calendar year issued by previous employer/s;
(9) Mixed income. An individual receiving a combination of

compensation and business/professional income shall first deduct the allowable
personal and additional exemptions from compensation income only the excess
therefrom can be deducted, from business or professional income. In the case of
husband and wife, the husband shall be the proper claimant of the exemptions
unless he waives it in favor of his wife.
(B) Employer. The employer with whom the employee's Application

for Registration (Form No. 1902) is filed, must indicate the date of receipt thereon
and accomplish Part V of the said Application pertaining to Employer's
Information such as TIN, Employer's Registered Name, and other relevant
information. LLphil
(C) Procedures for the filing of the Application (Form No. 1902)
(1) All employers shall require their employees to accomplish in duplicate

the Application for Registration described above as follows:
(a) All employees who have not filed the Application for
Registration (BIR Form 1902), as of December 31, 1997, shall
accomplish and file the application with their employers not
later than April 30, 1998;
(b) New employees shall accomplish and file the Application

within ten (10) days from the date of commencement of
employment;
(c) In case of changes in the information data in the Application

(BIR Form 1902) previously submitted by the employee,
consisting of changes in personal and additional exemptions,
employment/working status of the spouse of the employee,
multiple employment status and amount of compensation
income, an Exemption Certificate (BIR Form 2305) reflecting
the changes, together with the required documents/evidence of
changes must be submitted to the employer within ten (10) days
after such change. The employer shall then make the necessary
adjustments on the withholding tax of the employee based on
the new information;
(2) The employer shall transmit both the original and duplicate copies of
the Application or Certificate (after accomplishing the portion for Employer's
information of either forms) to the Revenue District Officer of the City or
Municipality where the employer has his legal residence or place of business
within thirty (30) days following its receipt from the employee. The duplicate copy
duly stamped received by the BIR shall be given to the employee.
(3) The employer shall review the exemptions of the employees and shall,
in the computation of taxes required to be withheld on the compensation of
employees, apply the correct and applicable exemptions as provided in these
regulations.
(4) In case the husband waives his right to claim the additional exemptions
of children in favor of his wife, he shall accomplish a waiver form (BIR Form No.
____) in accordance with the following procedures:
(a) Fill up three (3) copies of the prescribed waiver form (BIR
Form No. ____)
(b) Submit to his employer within ten (10) days from employment,
together with the BIR Form 1902 said waiver form for
acknowledgment in the space provided for that purpose.
The employer of the husband shall:
(i) After filling up the acknowledgment portion of the waiver form,

retain the duplicate copy of the form and furnish the employee
the original and triplicate copies for submission to the employer
of the wife and for file of the employee, respectively.
(ii) Stop deductions of exemptions of children from the husband's

compensation income starting the following month.
The employer of the wife shall:
Upon receipt of copy of the waiver form duly acknowledged by the

employer of the husband, start deducting exemptions of children from the wife's
income on the month when the employer of the husband stopped deducting the
exemptions of children from the husband's income. prLL
(c) The employed husband and wife shall apply the waiver in the
computation of their respective taxable income in the income
tax return required to be filed by them following the procedure
for filing the waiver under Section 2.79.1 (C)(4) of these
regulations, that is, the husband shall not deduct exemptions of
children from his compensation income because he has waived
the same (exemptions of children) in favor of his wife who will
now deduct said exemptions from her income in computing her
tax due.
Waiver exercised during the calendar year shall be made only once in a
calendar year and shall take effect for the present calendar year and succeeding
year/s until revoked by the husband. Any waiver/revocation of such waiver shall
take effect only starting the succeeding calendar year. In no case should an
employer of the wife deduct exemptions of children from the wife's income unless
the waiver by the husband has been duly acknowledged by the employer of the
husband.
SECTION 2.79.2. Failure to File Application for Registration (Form No.

1902 or Exemption Certificate). Where an employee, in violation of these
regulations either fails or refuses to file an Application for Registration (1902)
together with the required attachments, the employer shall withhold the taxes
prescribed under the Schedule for Zero Exemption of the Revised Withholding
Tax Table effective January 1, 1998. In case of failure to file the Exemption
Certificate (2305) together with the attachments, the employer shall withhold the
taxes based on the reported personal exemptions existing prior to the change of
status and without reflecting any change. Any refund or underwithholding that
shall arise due to the violations shall be covered by the penalties prescribed in
Section 80 of the NIRC, as amended (Liability for Tax).
SECTION 2.79.3. Withholding on the Basis of Average Compensation.

The employer may withhold the tax under the NIRC, as amended, on the basis of
the employee's average estimated compensation, with the necessary adjustments,
for any month/quarter/year.
SECTION 2.79.4. Husband and Wife. Where both husband and wife are
each recipients of compensation either from the same or different employers, taxes
to be withheld shall be determined on the following basis:
(A) The husband shall be deemed the proper claimant of the

additional exemption in respect to any dependent children,
unless he explicitly waives his right in favor of his wife in the
application for registration or in the withholding exemption
certificate. The waiver may be done any time during the year.
(B) In general, taxes shall be withheld from the wages of the wife in
accordance with the schedule for a married person without any
qualified dependent.
SECTION 2.79.5. Non-Resident Aliens. Compensation for services

rendered in the Philippines paid to non-resident aliens engaged in trade or business
shall be subject to withholding under these Regulations.
SECTION 2.79.6. Year-End Adjustment. On or before the end of the

calendar year, and prior to the payment of the compensation for the last payroll
period, the employer shall determine the sum of the taxable regular and
supplementary compensation paid to each employee for the entire year, including
the last compensation to be paid and compute for the amount of income tax on the
annualized gross compensation income; Provided however, that the taxable fringe
benefits received by employees except those given to the rank and file shall be
subject to a final fringe benefits tax.
SECTION 2.80. Liability for Tax.
(A) Employer.
(1) In general, the employer shall be responsible for the withholding and
remittance of the correct amount of tax required to be deducted and withheld from
the compensation income of his employees. If the employer fails to withhold and
remit the correct amount of tax, such tax shall be collected from the employer
together with the penalties or additions to the tax otherwise applicable.
(2) The employer who required to collect, account for and remit any tax
imposed by the NIRC, as amended, who willfully fails to collect such tax, or
account for and remit such tax or willfully assist in any manner to evade any
payment thereof, shall in addition to other penalties, provided for in the Code, as
amended, be liable, upon conviction, to a penalty equal to the amount of the tax
not collected nor accounted for or remitted. Cdpr
(3) Any employer/withholding agent who fails, or refuses to refund excess

withholding tax not later than January 25 of the succeeding year shall, in addition
to any penalties provided in Title X of the Code, as amended, be liable to a penalty
equal to the total amount of refund which was not refunded to the employee
resulting from any excess of the amount withheld over the tax actually due on their
return.
(B) Employee. Where an employee fails or refuses to file the

withholding exemption certificate or willfully supplies false or inaccurate
information thereunder after due written notice by the employer, the tax otherwise
to be withheld by the employer shall be collected from him including penalties or
additions to the tax from the due date of remittance until the date of payment. On
the other hand, where the employee, after due written notice from the employer,
willfully fails or refuses to file the application for registration OR the withholding
exemption certificate or willfully supplies false and inaccurate information, the
excess taxes withheld by the employer shall not be refunded to the employee but
shall be forfeited in favor of the government.
(C) Additions to Tax.
(1) There shall be imposed, in addition to the tax required to be paid, a

penalty equivalent to twenty five percent (25%) of the amount due, in the
following cases:
(a) Failure to file any return and pay the tax due thereon as
required under the provisions of the Code or these regulations
on the date prescribed; or
(b) Unless otherwise authorized by the Commissioner, filing a

return with an internal revenue officer other than those with
whom the return is required to be files; or
(c) Failure to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment; or
(d) Failure to pay the full or part of the amount of tax shown on
any return required to be filed under the provisions of the Code
or these regulations, or the full amount of tax due for which no
return is required to be filed, or before the date prescribed for
its payment; or
(e) In case of willful neglect to file the return within the period
prescribed by the Code or regulations, or in case a false or
fraudulent return is willfully made, the penalty to be imposed
shall be fifty percent (50%) of the deficiency tax, in case any
payment has been made on the basis of such return before the
discovery of the falsity or fraud.
(f) The penalties imposed hereunder shall apply in the case of a

deficiency tax assessment which has become final and
executory but which is not paid within the time prescribed for
payment. The interest shall be imposed on the total amount due,
inclusive of the deficiency increments.
(2) Interest There shall be assessed and collected on any unpaid

amount of tax, an interest at the rate of twenty percent (20%) per annum, or such
higher rate as may be prescribed for payment until the amount is fully paid.
(3) Deficiency Interest Any deficiency in the basic tax due, as the term
is defined in the Code, shall be subject to the interest prescribed in paragraph (a)
hereof, which interest shall be assessed and collected from the date prescribed for
its payment until the full payment thereof. Cdpr
If the withholding agent is the government or any of its agencies, political

subdivisions, or instrumentalities or a government-owned or controlled
corporation, the employee thereof responsible for the withholding and remittance
of tax shall be personally liable for the surcharge and interest imposed herein.
(D) Failure to File Certain Information Returns (Sec. 250 of the Code).
In the case of each failure to file an information return, statement or list, or keep
any record, or supply any information required by this Code or by the
Commissioner on the date prescribed therefor, unless it is shown that such failure
is due to reasonable cause and not to willful neglect, there shall, upon notice and
demand by the Commissioner, be paid by the person failing to file, keep or supply
the same, one thousand pesos (P1,000) for each such failure: Provided, however,
That the aggregate amount to be imposed for all such failures during a calendar
year shall not exceed twenty-five thousand pesos (P25,000).
(E) Specific Penalties. Notwithstanding the penalties hereunder

provided, the following violations may be extrajudicially settled through
compromise pursuant to Sec. 204 of the Code.
(1) Failure to file return, supply correct and accurate information, pay
tax, withhold and remit tax and refund excess tax withheld on compensation (Sec.
255 of the Code). Any person required under the Code, as amended, or by
regulations to pay any tax, make a return, keep any record/s, or supply correct and
accurate information, who willfully fails to pay such tax, make such return, keep
any record/s, or supply correct and accurate information, or withhold or remit
taxes withheld, or refund excess taxes withheld on compensation, at the time or
times required by law, shall in addition to the other penalties provided by law,
upon conviction thereof, be fined not less than ten thousand pesos (P10,000) and
imprisonment of not less than one (1) year but not more than the (10) years.
(2) Declarations under penalties of perjury (Sec. 267 of the Code).

Any declaration, return and other statements required under the Code, as amended,
shall, in lieu of an oath, contain a written statement that they are made under the
penalties of perjury. Any person who willfully files a declaration, return or
statement containing information which is not true and correct as to every material
matter shall, upon conviction, be subject to the penalties prescribed for perjury
under the Revised Penal Code.
(3) Violation of withholding tax provision by a government officer (Sec.

272 of the Code). Every officer or employee of the government of the Republic
of the Philippines or any of its agencies and instrumentalities, its political
subdivisions, as well as government-owned or controlled corporation including the
Central Bank who, under the provisions of the Code, as amended, or regulations
promulgated thereunder, is charged with the duty to deduct and withhold any
internal revenue tax and to remit the same in accordance with the provisions of the
Code as amended, and other laws shall be guilty of any offense herein below
specified and upon conviction of each act or omission, be fined in a sum not less
than five thousand pesos (P5,000) but not more than fifty thousand pesos
(P50,000) or imprisoned for a term of not less than six months and one day but not
more than two years, or both:
(a) Those who fail or cause the failure to deduct and withhold any
internal revenue tax under any of the withholding tax laws and
implementing regulations;
(b) Those who fail or cause the failure to remit taxes deducted and
withheld within the time prescribed by law, and implementing
regulations; and
(c) Those who fail or cause the failure to file a return or statement
within the time prescribed, or render or furnish a false or
fraudulent return or statement required under the withholding
tax laws and regulations.
(4) Violation of other provisions of the Code or regulations in general

(Sec. 275 of the Code). A person who violates any provision of the Code, as
amended, or any regulation, for which no specific penalty is provided by law shall,
upon conviction for its act or omission, be fined in a sum of not more than one
thousand pesos or imprisoned for a term of not more than six months, or both.
The specific schedule of penalties shall be provided in a separate regulation.
SECTION 2.81. Filing of Return and Payment of Income Tax Withheld

on Compensation (Form No. 1601). Every person required to deduct and
withhold the tax on compensation shall make a return and pay such tax on or
before the 10th day of the month following the month in which withholding was
made to any authorized agent bank within the Revenue District Office (RDO) or in
places where there are no agent banks, to the Revenue District Officer of the City
or Municipality where the withholding agent/employers legal residence or place of
business or office is located; provided, however, that taxes withheld from the last
compensation (December) for the calendar year shall be paid not later than January
25 of the succeeding year; Provided, further, that large taxpayers as determined by
the Commissioner shall remit taxes withheld on or before the 25th day of the
following month. LibLex
If the person required to withhold and pay the tax is a corporation, the
return shall be made in the name of the corporation and shall be signed and
verified by the president, vice-president, or authorized officers.
With respect to any tax required to be withheld by a fiduciary, the returns

shall be made in the name of the individual, estate, or trust for which such
fiduciary acts, and shall be signed and verified by such fiduciary. In the case of
two or more joint fiduciaries the return shall be signed and verified by one of such
fiduciaries.
SECTION 2.82. Return and Payment in Case Where the Government is

the Employer. If the Government of the Philippines, its political subdivision or
any agency or instrumentality, as well as government-owned or controlled
corporation is the employer, the returns of the tax may be made by the officer or
employee having control of payment of compensation or other officer or employee
appropriately designated for the purpose.
SECTION 2.83. Statement and Returns.
SECTION 2.83.1. Employees Withholding Statements (BIR Form No.

2316). In general, every employer or other person who is required to deduct and
withhold the tax on compensation and fringe benefits shall furnish every employee
from whose compensation taxes have been withheld the Certificate of Income Tax
Withheld on Compensation (Form No. 2316, formerly Form No. W-2) on or
before January 31 of the succeeding calendar year, or if his employment is
terminated before the close of such calendar year, on the day on which the last
payment of compensation is made.
The employer shall furnish each employee with the original and duplicate
copies of Form No. 2316 showing the name and address of the employer;
employer's TIN; name and address of the employee; employee's TIN; amount of
exemptions claimed; amount of premium payments on medical insurance not
exceeding P2,400.00, if any; the sum of compensation paid including the
non-taxable benefits; the amount of tax due; the amount of tax withheld during the
calendar year and such other information as may be required. The statement must
be signed by both the employer or other authorized officer and the employee, and
shall contain a written declaration that it is made under the penalties of perjury. If
the employer is the Government of the Philippines, its political subdivision,
agency or instrumentality or government-owned or controlled corporation, the
statement shall be signed by the duly designated officer or employee.
An extra copy of Form 2316 shall be furnished by the employee, duly

certified by him, to his new employer. cdphil
SECTION 2.83.2. Annual Information Return of Income Tax Withheld on

Compensation (Form No. 1604, Formerly Form No. 1743IR). Every employer
or other person required to deduct and withhold the tax shall, on or before January
thirty-first of the succeeding year, file with either the Collection Agent or
Authorized Municipal Treasurer or Revenue District Officer or Commissioner the
Annual Information Return of Income Tax Withheld on Compensation (BIR Form
No. 1604), to be submitted with an alphabetical list of employees, both in
duplicate copies.
(A) The Annual Information Return of Income Tax Withheld on

Compensation must show among others, the following:
(1) Withholding Agent's registered name, address and Taxpayer's

Identification Number (TIN);
(B) The alphabetical list of employees must show the following:
(1) Name and TIN of employees;
(2) Gross compensation paid by present and previous employers for

the calendar year;
(3) (a) Taxable 13th month pay/Other benefits for the rank and file
employees
(b) Taxable fringe benefits for managerial employees
(4) Non-taxable 13th month pay/Other benefits (Present employer)
(5) Amount of exemptions;

(6) Amount of premium payments on medical insurance not
exceeding P2,400.00, if any;
(7) Tax required to be withheld computed in accordance with Sec.

24(A) of the Code;
(8) Tax withheld by all present employers for calendar year; and
(9) Adjustment, if any.
(C) The alphabetical list of employees shall be prepared indicating among

others, separate listings of the following:
(1) Employees as of December 31 of the taxable year without

previous employment during the year;
(2) Employees as of December 31 of the taxable year with previous

employment within the year;
(3) Employees who were terminated prior to the year-end

adjustment computation showing the month of
termination/month of last payment of compensation during the
year of termination; and
(4) Alien employees subject to final withholding tax.
In cases where no information was provided by a previous employer, such

fact should be annotated in Form 1604 and the present employer shall not be liable
to any penalties.
SECTION 2.83.3. Requirement for Income Payees List. In lieu of the

manually prepared alphabetical list of employees and list of payees and income
payments subject to creditable and final withholding taxes which are required to be
attached as integral part of the Annual Return (Form No. 1604), the Withholding
Agent may, at its option, submit computer-processed tapes or cassettes or
diskettes, provided that the said list has been encoded in accordance with the
formats prescribed by Form 1604. dctai
SECTION 2.83.4. Filing of Income Tax Returns by Employees Receiving

Purely Compensation Income. Individual taxpayers receiving purely
compensation income from Philippine sources which does not exceed an aggregate
amount of P60,000 for the calendar year and the income tax on which has been
withheld correctly by the employer (tax withheld equals tax due) shall no longer
file an income tax return (1700) required under Sec. 51 of the Code. The following
individuals, however, are still required to file their income tax returns:
(A) Individuals deriving compensation concurrently from two or

more employers at anytime during the taxable year.
(B) Individuals whose purely compensation income for the taxable

year exceeds P60,000.
(C) Individuals receiving a combination of compensation and

business income (mixed income). This includes a married
individual receiving purely compensation income whose spouse
derives income from business.
In case of married individuals who are still required to

file returns, only one return for the taxable year shall be filed by
either spouse to cover the income of both spouses.
(D) Employees whose total compensation income, regardless of the

amount, whether from a single or several employers during the
calendar year, the income tax of which has not been withheld
correctly, that is, that the total withholding tax does not equal
the total tax due on total compensation income for the taxable
year.
(E) In case of married individuals where one of the spouses

received compensation income exceeding P60,000, a return
shall be filed to include the income of the other spouse whose
compensation is P60,000 or less.
SECTION 2.83.5. Registration as Withholding Agent. Every person who

makes payment or expects to make payment of compensation in the amount of
sixty thousand pesos (P60,000.00) or more a year or five thousand pesos
(P5,000.00) monthly, to any single employee shall register by filing in duplicate,
with the Revenue District Office (RDO) of the City or Municipality where his
legal residence or place of business is located, an Application for Registration as a
withholding agent using the form prescribed by the Bureau not later than ten (10)
days after becoming an employer.
SECTION 2.83.6. Applicability of Constructive Receipt of Compensation.

The withholding tax on compensation shall apply to compensation actually or
constructively paid. Compensation is constructively paid within the meaning of
these Regulations when it is credited to the account of or set apart for an employee
so that it may be drawn upon by him at any time although not then actually
reduced to possession. To constitute payment in such a case, the compensation
must be credited or set apart for the employee without any substantial limitation or
restriction as to time or manner of payment or condition upon which payment is to
be made, and must be made available to him so that it may be drawn upon at any
time, and its payment brought with his control and disposition. A book entry, if
made, should indicate an absolute transfer from one account to another. If the
income is not credited, but it is set apart, such income must be unqualifiedly
subject to the demand of the taxpayer. Where a corporation contingently credits its
employees with a bonus stock, which is not available to such employees until some
future date, the mere crediting on the books of the corporation does not constitute
payment. LexLib
SECTION 2.83.7. Extension of Time for Furnishing Statements to

Employee. An extension of time, not exceeding thirty (30) days, within which
to furnish the Certificate of Income Tax Withheld on Compensation (Form No.
2316) required by Sec. 2.83 of these Regulations upon termination of employment
is hereby granted to any employer with respect to any employee whose
employment is terminated during the calendar year. In the case of intermittent or
interrupted employment where there is a reasonable expectation on the part of both
employer and employee or further employment, there is no requirement that an
employee's withholding statement be immediately furnished the employee; but
when such expectation cease to exist, the statement must be furnished within thirty
(30) days from the date of termination of employment. The extension mentioned
under this Section refers to extension of time for furnishing the Certificate of
Income Tax Withheld on Compensation (Form No. 2316) upon termination of
employment.
SECTION 4.114. Withholding of Creditable Value-Added Tax.
In general, value-added tax due on sales of goods and services are not
subject to withholding since the tax is not determinable at the time of sale.
However, sale of goods and services to the government subject to VAT shall be
subject to withholding pursuant to Sec. 114 (C) of RA 8424.
(A) Rates and basis of creditable value-added tax to be withheld. The

gross payments made by the government to sellers of goods and services shall be
subject to withholding tax at the rates herein prescribed:
(1) In general, payments by the government or any of its political

subdivisions, instrumentalities or agencies including
government-owned or controlled corporations (GOCCs) on
account of its purchase of goods from sellers and services
rendered by contractors who are subject to the value-added tax

On gross payment for the purchase of goods - 3%
On gross payment for services rendered - 6%
(2) Payments made to government public works contractors

8.5%
(3) Payments for lease or use of property or property rights to

non-resident owners 10%
(B) Persons required to deduct and withhold. All local government

units, represented by the Provincial Treasurer in provinces, the City Treasurer in
cities, the Municipal Treasurer in municipalities, and Barangay Treasurer in
barangays, Treasurers of GOCCs and the Chief Accountant or any person holding
similar position and performing similar function in national government offices, as
withholding agents, shall deduct and withhold the prescribed creditable
value-added tax before making any payment to seller of goods and services.
Where the government as herein defined has regional offices, branches or

units, the withholding and remittance of the creditable VAT may be done on a
decentralized basis as such, the treasurer or the chief accountant or any person
holding similar function in said regional office, branch or unit shall deduct and
withhold the creditable VAT before making any payment to the seller of goods and
services.
(C) Returns and payment of taxes withheld. The withholding agents

shall accomplish the Monthly Value-Added Tax Declaration (BIR Form 2550M)
in duplicate and the amount withheld paid upon filing the return with the
authorized agent banks located within the Revenue District Office (RDO) having
jurisdiction over the place where the government office is located. In places where
there are no authorized agent bank, the return shall be filed directly with the
Revenue District Offices, Collection Offices or the duly authorized Treasurer of
the city or municipality where the government office is located except in cases
where the Commissioner otherwise permits.
The required return shall be filed and payments made within ten (10) days
following the end of the month the withholding was made except taxes withheld
for the 3rd month of the quarter which shall be remitted through a Quarterly
Value-Added Tax Return (BIR Form 2550Q) to be filed not later than the 25th day
after the end of the calendar quarter. cda
(D) Certificate of Value Added Tax Withheld. Every withholding agent

shall furnish each seller of goods and services from whom taxes has been deducted
and withheld, the Certificate of Creditable Tax Withheld at Source (BIR Form
2307) to be accomplished in quadruplicate, the first three copies of which shall be
given to the seller/payee not later than the fifteenth day of the following month.
The fourth copy shall be the file copy of the withholding agent.
(E) Liability of designated officers.
(1) Additions to the tax. The designated Treasurers, Chief Accountants

and other persons holding similar positions, who have the duty to withhold and
remit the value added tax in their respective offices shall be personally liable for
the additions to the tax prescribed in Sec. 247 of the Code.
(2) Punishable acts or omissions. Every officer or employee of the

government of the Republic to the Philippines or any of its agencies and
instrumentalities, its political subdivisions, as well as government owned or
controlled corporations charged with the duty to deduct and withhold any internal
revenue tax and to remit the same in accordance with these regulations shall, upon
conviction for each act or omission herein-below specified, be fined in a sum of
not less than five thousand pesos (P5,000.00) but not more than fifty thousand
pesos (P50,000.00) or imprisoned for a term of not less than six months and one
day but not more than two years, or both.
(a) Fails or causes the failure to deduct and withhold any internal
revenue tax covered by these regulations;
(b) Fails or causes the failure to remit the taxes deducted and
withheld within the time prescribed therein;
(c) Fails or causes the failure to file the return or issue certificate
required.
SECTION 5.116. Withholding of Percentage Tax.
Bureaus, offices and instrumentalities of the government, including

government-owned or controlled corporations as well as their subsidiaries,
provinces, cities and municipalities making any money payment to private
individuals, corporations, partnerships and/or associations are required to deduct
and withhold the taxes due from the payees on account of such money payments.
(A) Internal revenue taxes required to be withheld. Percentage taxes on

gross money payments, to the following shall be subjected to withholding at the
rates herein prescribed:
(1) Persons exempt from value-added tax (VAT). On gross payments to

persons who are exempt under Sec. 109 (z) of the Code from payment of
value-added tax and who is not a VAT registered person except payment to
cooperatives Three percent (3%) Cdpr
(2) Domestic carriers and keepers of garages. On gross payments to

operators of cars for rent or hire driven by the lessee, transportation contractors,
including those who transports passengers for hire, and other domestic carriers by
land, air or water, for transport of passengers, except owner of bancas and owners
of animal-drawn two wheeled vehicle, and keepers of garages Three percent
(3%)
(3) International carriers
(a) On gross payments to international air carriers doing business in

the Philippines Three percent (3%)
(b) On gross payments to international shipping carriers doing

business in the Philippines Three percent (3%)
(4) Franchises
(a) On gross payments to all franchises on radio and/or television

broadcasting companies whose annual gross receipts of the
preceding year does not exceed P10,000.00 Three percent
(3%)
(b) On gross payments to franchises on electric, gas and water

utilities Two percent (2%)
(5) Banks and non-bank financial intermediaries
(a) On interest, commissions and discounts paid or given to banks

and non-bank financial intermediaries arising out of lending
activities as well as financial leasing, on the basis of the
remaining maturities of the instrument
Short-term maturity (not exceeding 2 years) 5%
Medium-term maturity (over 2 year but not exceeding 4 years)3%

Long-term maturity
(i) over 4 years but not exceeding 7 years 1%
(ii) over 7 years 0%
(b) On dividends 0%
(c) On royalties, rentals of property, real or personal, profits from

exchange and all other gross income Five percent (5%)
(6) Finance companies
(a) On interest, discounts and other items of gross income paid to

finance companies and other financial intermediaries not
performing quasi-banking functions Five percent (5%)
(b) On interests, commissions and discounts paid from their loan

transactions from finance companies as well as financial leasing
based on the remaining maturities of the instruments:
Short-term maturity (not exceeding 2 years) 5%

Medium-term maturity (over 2 years but not exceeding 4 years)3%
Long-term maturity
(i) over 4 years but not exceeding 7 years 1%
(ii) over 7 years 0%
(7) Life insurance premiums On the total premiums paid to persons

doing life insurance business of any sort in the Philippines Five percent (5%)
However the following shall not be included in the taxable receipts and
consequently not subject to withholding tax:
(a) Premiums refunded within six (6) months after payment on

account of rejection of risk or returned for other reasons to the
insured;
(b) reinsurance premiums where the tax has previously been paid;
(c) premiums collected or received by any branch of a domestic

corporation, firm or association doing business outside the
Philippines on account of any life insurance of a non-resident
insured, if any tax on such premium is imposed by a foreign
country where the branch is established;
(d) premiums collected or received on account of any reinsurance,

if the insured, in case of personal insurance resides outside the
Philippines, if any tax on such premiums is imposed by a
foreign country where the original insurance has been issued or
perfected; LLphil
(e) portion of the premiums collected or received by the insurance

companies on variable contracts in excess of the amounts
necessary to insure the lives of the variable contract workers.
(8) Agents of foreign insurance companies
(a) On premiums paid to every fire, marine, or miscellaneous

insurance agent legally authorized under the Insurance Code to
procure policies of insurance on risk located in the Philippines
for companies not authorized to transact business in the
Philippines except on reinsurance premium Ten percent
(10%)
(b) On premium payments obtained directly with foreign

companies where the owner of the property does not make use
of the services of any agent, company or corporation residing or
doing business in the Philippines, in which case, it shall be the
duty of said owners to report to the Insurance Commissioner
and to the BIR Commissioner each case where insurance has
been so effected Five percent (5%)
(9) Amusements On gross payments to the proprietor, lessee, or

operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional
basketball games, jai-alai and racetracks at the rates herein prescribed:
(a) cockpits Eighteen percent (18%)
(b) Cabarets, night and day clubs Eighteen percent (18%)
(c) Boxing exhibitions except those wherein World or Oriental

Championship in any division is at stake and at least one of the
contenders is a citizen of the Philippines and promoted by a
citizen/s of the Philippines or by a corporation or association at
least 60% of the capital of which is owned by such citizens
Ten percent (10%)
(d) Professional basketball games as envisioned in Presidential

Decree No. 871 Fifteen percent (15%)
(e) Jai-alai and racetracks irrespective of whether or not any

amount is charged for admission Thirty percent (30%)
(10) Sale, barter or exchange of shares of stock listed and traded through
the local stock exchange. On the gross selling price or gross value in money
derived on every sale, barter or other disposition of shares of stock listed and
traded through the local stock exchange other than the sale by a dealer in securities
One-half of one percent (1/2 of 1%)
(11) Shares of stock sold or exchanged through initial public offering.
On the gross selling price or gross value in money derived on every sale, barter,
exchange or other disposition through initial public offering of shares of stock in
closely held corporations in accordance with the proportion of such shares to the
total outstanding shares of stock after the listing in the local stock exchange at the
rates herein prescribed:
Not over 25% 4%

Over 25% but not exceeding 33 1/3% 2%
Over 33 1/3% 1%
(B) Returns and payments of taxes withheld. No money payments shall

be made by any government office or agency unless the taxes due thereon shall
have been deducted and withheld.
Taxes deducted and withheld shall be covered by the Monthly Return of

Internal Revenue Taxes withheld on Government Money Payments (BIR Form
1600) in duplicate to be filed and the tax to be paid to the Authorized Agent Bank
located within the Revenue District Office (RDO) having jurisdiction over the
place where the government office is located. In places where there are no
authorized agent bank, the return shall be filed directly with the Revenue District
Officer, Collection Officer or the duly authorized Treasurer of the City or
Municipality where the government office is located except in cases where the
Commissioner otherwise permits. The required return shall be filed and payments
made within ten (10) days following the end of the month the withholding was
made. prcd
(C) Certificate of internal revenue taxes withheld. Every withholding

government office, agency or entity shall furnish each proprietor, operator,
common carrier, franchise holder, bank and non-bank financial intermediaries,
finance company, insurance company or agent from whom taxes under these
regulations had been deducted and withheld the Certificate of Creditable Tax
Withheld at Source (BIR Form 2307) to be accomplished in triplicate, two copies
to be given to the payee simultaneously with the money payments not later than
the fifteenth (15th) day of the month following the close of the calendar quarter.
The third copy of the certificate shall be the file copy of the withholding
government office, agency or entity.
(D) Liability of designated officers
(1) Additions to the tax The designated Treasurers, Chief Accountants

and other persons holding similar positions, who have the duty to withhold and
remit the value added tax in their respective offices shall be personally liable for
the additions to the tax prescribed in Sec. 247 of the Code.
(2) Punishable acts or omissions Every officer or employee of the

government of the Republic of the Philippines or any of its agencies and
instrumentalities, its political subdivisions, as well as government owned or
controlled corporations charged with the duty to deduct and withhold any internal
revenue tax and to remit the same in accordance with these regulations shall, upon
conviction for each act or omission herein-below specified, be fined in a sum of
not less than five thousand pesos (5,000.00) but not more than fifty thousand pesos
(50,000.00) or imprisoned for a term of not less than six months and one day but
not more than two years, or both.
(a) Fails or causes the failure to deduct and withhold any internal
revenue tax covered by these regulations;
(b) Fails or causes the failure to remit the taxes deducted and
withheld within the time prescribed therein;
(c) Fails or causes the failure to file the return or issue certificate
required.
REPEALING CLAUSE. All existing rules and regulations or parts

thereof which are inconsistent with the provisions of these regulations are hereby
revoked.
EFFECTIVITY. These regulations shall take effect on compensation

income paid beginning January 1, 1998. No penalties shall apply until May 15,
1998 for non-compliance with the new features of the Code as implemented in
these regulations. cdasia
MILWIDA M. GUEVARA
Acting Secretary
Commissioner
April 8, 1998
SUBJECT : Re-Defining the Term "Large Taxpayers", Modifying the

Criteria for Determining Large Taxpayers, and
Prescribing the Time, Place and Manner of Filing of Tax
Returns and Payment of Taxes by Large Taxpayers
Amending Further RR No. 12-93, as Amended by RR
3-94
SECTION 1. Objectives. These regulations are hereby promulgated

to:
1. Re-define the term "Large Taxpayers", in view of the passage of

the Comprehensive Tax Reform Package under Republic Act
No. 8424, also known as the Tax Reform Act of 1997;
2. Modify the criteria in determining Large Taxpayers in

consideration of inflation, volume of business, wage and
employment levels and similar economic factors pursuant to the
provisions of Section 245 (j) of the National Internal
Revenue Code (NIRC) of 1997; prcd
3. Expand the selection of one thousand (1,000) Large Taxpayers

initially identified under Revenue Regulations (RR) No. 12-93
(as amended by RR No. 3-94), to one thousand five hundred
(1,500), at the outset, and provide for the continuous expansion
of the selection, until such time that eighty-five percent (85%)
of the Bureau's total collections shall have been captured and
monitored through the database of Large Taxpayers; and
4. Prescribe the time, place and manner of filing of tax returns and
payment of taxes of Large Taxpayers in relation to the pertinent
provisions of the NIRC and further amending RR No. 2-93 as
amended by RR No. 3-94.
SECTION 2. Coverage.
1. The initial 1,500 Large Taxpayers to be identified and

covered under these Regulations shall comprise those Large
Taxpayers located within the following Revenue Regions:
1.1 Revenue Region No. 4, San Fernando, Pampanga;
1.2 Revenue Region No. 5, Valenzuela; cdtai
1.3 Revenue Region No. 6, Manila, with the exception of:
1.3.1 Revenue District No. 35, Romblon
1.3.2 Revenue District No. 36, Puerto Princesa, and
1.3.3 Revenue District No. 37, San Jose, Occidental

Mindoro
1.4 Revenue Region No. 7, Quezon City
1.5 Revenue Region No. 8, Makati City; and
1.6 Revenue Region No. 9, San Pablo City, with the

exception of:
1.6.1 Revenue District No. 62, Boac, Marinduque; and
1.6.2 Revenue District No. 63, Calapan, Oriental

Mindoro.
2. Large Taxpayers whose offices are not located in any of the

aforementioned Revenue Regions, but who maintain branch
offices in any of said Revenue Regions, may also be classified
as Large Taxpayers, and shall be duly notified by the
Commissioner of their status as such.
3. Any taxpayer not located in or maintaining branch offices in

any of the aforementioned Revenue Regions, but who may in
the future, be classified as a Large Taxpayer and duly notified
by the Commissioner of Internal Revenue of its status as such,
shall be covered by these Regulations, and shall fall under the
jurisdiction of the Large Taxpayers Offices that shall be created
in other areas. cdlex
4. Additional Large Taxpayers may be selected and notified by the

Commissioner of Internal Revenue, and covered by these
Regulations.
5. Separate venues may also be designated by the Commissioner

of Internal Revenue for the filing of tax returns and payment of
taxes by said Large Taxpayers.
6. Once a taxpayer has been identified and notified of his/its status

as a Large Taxpayer by the Commissioner of Internal Revenue,
he/it shall continue to be classified as such, and shall therefore
be covered by these Regulations, until otherwise notified.
SECTION 3. Criteria for Determination of Large Taxpayers. A

"Large Taxpayer" is a taxpayer who has been classified as such, and has been duly
notified by the Commissioner of Internal Revenue as having satisfied any or a
combination of the following criteria:
1. As to tax payment:
a. Value-Added Tax (VAT) Any taxpayer with net VAT

paid or payable of at least P100,000 per quarter;
b. Excise Tax Any taxpayer with annual excise tax paid

or payable of at least P1,000,000;
c. Income Tax Any taxpayer with annual income paid or

payable of at least P1,000,000;
d. Withholding Tax Any taxpayer with annual

withholding tax payment/remittance for all kinds of
withholding taxes (i.e., on compensation, expanded, final
and government money payment) of at least P1,000,000;
(For taxpayers, business establishments and government
offices with branches/units, the basis is the total annual
taxes withheld by the Head Office and all the
branches/units.)
e. Percentage Taxes Any taxpayer with percentage taxes
of at least P100,000 per quarter; or
f. Documentary Stamp Taxes Any taxpayer with

aggregate annual documentary stamp taxes of at least
P1,000,000.
2. As to financial condition and results of operations:
a. Gross Sales/Receipts Any taxpayer with total annual

gross sales/receipts of P1,000,000,000; and
b. Net Worth Any taxpayer with a total Net Worth at the

close of each calendar or fiscal year of at least
P300,000,000. LLphil
SECTION 4. Filing of Returns and Payment of Taxes.
1. Where to File and Pay: lexlib
All Large Taxpayers shall file all internal revenue tax returns,
information returns or declarations, and other required
documents at the Large Taxpayers Division, Ground Floor, BIR
National Office Building; and pay the taxes thereon at either the
Development Bank of the Philippines (DBP) or the Land Bank
of the Philippines (LBP) branches located at the same place.
This constitutes an exception to the place of filing and payment
as provided for in Sections 58, 77, 81, 114,
128, 130 and 200 of the NIRC.
2. Modes of Payment:
Payments may be made only through any or a combination of

the following modes:
2.1 Bank Debit Memo/Advice against the taxpayer's account

with the DBP of LBP; and
2.2 Tax Debit Memo applied by the taxpayer against the

unutilized portion of duly issued tax credit certificates
for all taxes except for withholding taxes.
3. When to File and Pay:
3.1 Income Tax
3.1.1 Corporate Large Taxpayers shall file quarterly tax

returns, and pay the taxes thereon, not later than
sixty (60) days from the close of each of the first
three (3) quarters of the taxable year, whether
calendar or fiscal. The final return and the
corresponding income tax shall be paid on or
before the fifteenth (15th) day of the fourth (4th)
month following the close of the calendar or fiscal
year, as the case may be, in accordance with
Sections 75, 76 and 77 of the
NIRC.
3.1.2 Individual Taxpayers who may, in the future, be

classified as Large Taxpayers and notified by the
Commissioner of Internal Revenue of their status
as such, shall file a declaration of their estimated
income for the current taxable year on or before
April 15 of the same taxable year, pursuant to
Section 74 (A) of the NIRC, and shall file
the tax returns and pay the taxes due in four (4)
installments, with the first installment to be paid
at the time of declaration and the second and third
to be paid on August 15 and November 15 of the
current year, respectively. The fourth installment
shall be paid on or before April 15 of the
following calendar year when the final adjustment
return is due to be filed in accordance with
Section 74 (B) of the NIRC. Cdpr
3.1.3 In the matter of quarterly and final annual income

tax returns, in case separate income tax returns
are prepared for each operational unit (e.g. banks
filing separate income tax returns for their regular
banking operations, trust operations and foreign
currency units), these taxpayers may continue to
do so.
However, the returns shall be forwarded to the

Head Office of the Large Taxpayer who shall file
a consolidated return and pay the total income
taxes due. The said Head Office shall prepare a
covering schedule (Annex A) of all its
units/departments showing the following
information:
a. Quarter/year covered;
b. Head office and unit names and addresses;

and
c. Amounts of income taxes payable.
3.2 Withholding Tax Remittance and Information Returns
All withholding taxes of the Head Office and/or any

branch/unit of a Large Taxpayer shall be covered by a
consolidated return, and remitted within twenty five (25)
days after the close of each month.
An accompanying schedule (Annex B) shall be attached

to the return filed with the following information:
a. Month covered;
b. Name and addresses of Head Office and

branches/units; and
c. Amount of withholding taxes to be remitted.
Annual information returns on final withholding taxes

shall be filed on or before January 31 of the succeeding
year, and for creditable withholding taxes, not later than
March 1 of the year following the year for which the
annual report is being submitted.
3.3 Value-Added Tax (VAT)
Monthly VAT declarations and quarterly VAT returns of

Large Taxpayers shall be filed, and the taxes paid, not
later than the 25th day following the end of each month
and quarter, respectively, in accordance with Section 114
of the NIRC. cdrep
3.4 Other Percentage Taxes
Large Taxpayers who are presently preparing separate

percentage tax returns shall file a consolidated return,
and pay the aggregate percentage taxes due, within
twenty five (25) days after the end of each taxable
quarter subject to the pertinent provisions of Section 128
(A) of the NIRC. The Head Office shall prepare a
schedule (Annex C) of all percentage tax returns of the
branches/units with the following information:
a. Quarter/period covered;
b. Head office and branch/unit names and addresses;

and
c. Kind and amount of percentage tax payable.
3.5 Excise Tax
Payments of Large Taxpayers, as indicated in the

corresponding Authorities to Accept Payment (ATAPs)
issued for excise taxes, shall be made before removal
from the place of production or before release of the
articles from the customs house subject to the pertinent
provisions of Sections 130 (A) (2) and 131 (A)
of the NIRC.
3.6 Documentary Stamp Taxes
Large Taxpayers shall pay their documentary stamp

taxes within ten (10) days after the close of the month
when the taxable document was made, signed, issued,
accepted or transferred as provided under Sec. 200 B
of the NIRC, by the filing of the documentary
stamp tax returns, through purchase or actual affixture or
by imprinting the documentary stamps through a
documentary stamp metering machine. cda
3.7 Capital Gains Tax and Withholding Tax on Gains

Realized on the Sale/Transfer of Property
A Large Taxpayer shall file capital gains and

withholding tax returns, and pay the corresponding
taxes, for gains from the sale or disposition of real
property under Section 24 (D) or Section 27 (D)(5)
of the NIRC, within thirty (30) days following each
sale or disposition.
3.8 Capital Gains and Withholding Taxes on Gains Realized

on the Sale/Transfer of Share of Stock
3.8.1 Large Taxpayers (Individuals) shall file capital
gains and withholding tax returns, and pay the
corresponding taxes, for gains from the sale or
exchange of shares of stock not traded thru a local
stock exchange as prescribed under Section 24(C)
of the NIRC, within thirty (30) days
following each transaction, and a final
consolidated return on or before April 15, of each
year covering all stock transactions of the
preceding taxable year.
3.8.2 Large Taxpayers (Corporate) deriving capital

gains from the sale or exchange of shares of stock
not traded thru a local stock exchange as
prescribed under Sections 24 (C), 25 (A)(3),
27 (E)(2), 28 (A)(7)(c), and 28
(B)(5)(c), shall file a return within thirty
(30) days after each transaction, and a final
consolidated return of all transactions during the
taxable year on or before the fifteenth (15th) day
of the fourth (4th) month following the close of
the taxable year.
SECTION 5. Amendments to Selection Criteria. The Commissioner

of Internal Revenue may recommend to the Secretary of Finance the
amendment/modification to any or all of the criteria in the determination and
selection of Large Taxpayers after considering such factors as inflation, volume of
business, wage and employment levels, and similar economic factors. LLjur

thereof inconsistent with the provisions of these regulations are hereby amended
accordingly. cdrep
SECTION 7. Effectivity. These regulations shall take effect

immediately.
(SGD.) SALVADOR ENRIQUEZ

Secretary
MILWIDA M. GUEVARA
Acting Secretary
Commissioner
(12)
December 9, 1995
SUBJECT : Consolidated Value-Added Tax Regulations
Pursuant to the provisions of Sections 245 and 4 of the National

Internal Revenue Code (NIRC), as amended, in relation to the provisions of
Executive Order No. 273, as amended by Republic Act No. 7716, these
Regulations are hereby promulgated to implement Sections 99, 100, 101,
102, 103, 104, 105, 106, 107, 108, 109,
110 and 111 of Title IV, Sections 112, 115, 117,
119, 120, 121, and 122 of Title V, and Sections 233,
236, 237, 238, 239, 242 and 244 of Title IX all
of the NIRC as amended.
COVERAGE, NATURE, BASIS AND RATE OF VALUE-ADDED TAX

(VAT)
SECTION 4.99-1. Persons Liable. Any person who, in the course of his
trade or business, sells, barters, exchanges or leases goods or properties, or renders
services, and any person who imports goods shall be liable to VAT imposed in
Sections 100 to 102 of the Code.
However, in the case of importation of taxable goods, the importer, whether

an individual or corporation and whether or not in the course of his trade or
business, shall be liable to VAT imposed in Section 101 of the Code.
"Person" refers to any individual, trust, estate, partnership, corporation,

joint venture, cooperative or association.
"Taxable person" refers to any person liable for the payment of

value-added tax, whether or not registered in accordance with Section 107.
"In the course of trade or business" means the regular conduct or pursuit of
a commercial or economic activity, including transactions incidental thereto, by
any person regardless of whether or not the person engaged therein is a non-stock,
non-profit private organization (irrespective of the disposition of its net income
and whether or not it sells exclusively to members or their guests), or government
entity.
However, any business or businesses pursued by an individual where the

aggregate gross sales or receipts do not exceed P100,000.00 during any 12-month
period shall be considered principally for subsistence or livelihood and not in the
course of trade or business.
The rule of regularity to the contrary notwithstanding, services rendered in

the Philippines by non-resident foreign persons shall be considered as being
rendered in the course of trade or business.
SECTION 4.99-2. Value-added Tax: Nature and Characteristics. VAT

is an indirect tax and the amount of the tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services.
These rules shall likewise apply to existing contracts of sale or lease of

goods, properties or services at the time of the effectivity of the R.A. 7716.
SECTION 4.100-1. Value-added Tax on Sale of Goods or Properties.

VAT is imposed and collected on every sale, barter or exchange or
transactions "deemed sale" of taxable goods or properties at the rate of 10% of the
gross selling price.
"Gross selling price" means the 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 the value-added
tax. The excise tax, if any, on such goods or properties shall form part of the gross
selling price. In the case of sale, barter or exchange of real property subject to
VAT, gross selling price shall mean the consideration stated in the sales document
or the zonal value whichever is higher. Provided however, in the absence of zonal
value, gross selling price refers to the market value shown in the latest tax
declaration or the consideration whichever is higher.
"Taxable sale" refers to the sale, barter, exchange and/or lease of goods or
properties, including transactions "deemed sale" and the performance of service
for a consideration, all of which are subject to tax under Sections 100 and
102 of the Code.
Any person otherwise required to register for VAT purposes who fails to
register shall also be liable to VAT on his sale of taxable goods or properties as
defined in the preceding paragraph. The sale of goods subject to excise tax is also
subject to VAT, except manufactured petroleum products (other than lubricating
oil, processed gas, grease, wax and petrolatum).
"Goods or properties" refer to all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
1. Real properties held primarily for sale to customers or held for

lease in the ordinary course of trade or business;
2. The right or the privilege to use patent, copyright, design or

model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
3. The right or the privilege to use in the Philippines any

industrial, commercial or scientific equipment;
4. The right or the privilege to use motion picture films, film tapes
and discs; and
5. Radio, television, satellite transmission and cable television

time.
Sale of real properties held primarily for sale to customers or held for lease
in the ordinary course of trade or business of the seller shall be subject to VAT.
In the case of sale of real properties on the installment plan, the real estate
dealer shall be subject to VAT on the installment payments, including interest and
penalties, actually and/or constructively received on or after January 1, 1996.
"Sale of real property on the installment plan" means sale of real property
by a real estate dealer, the initial payments of which in the year of sale do not
exceed twenty-five percent (25%) of the gross selling price.
However, in the case of sale of real properties on the deferred-payment

basis, not on the installment plan before January 1, 1996, the subsequent payments
of the balance of the gross selling price on or after January 1, 1996 shall no longer
be subject to VAT considering that the transactions is treated as cash.
"Sale of real property by a real estate dealer on a deferred payment basis,

not on the installment plan" means sale of real property, the initial payments of
which in the year of sale exceed twenty-five percent (25%) of the gross selling
price.
"Initial payments" means payment or payments which the seller receives

before or upon execution of the instrument of sale and payments which he expects
or is scheduled to receive in cash or property (other than evidence of indebtedness
of the purchaser) during the year when the sale or disposition of the real property
was made. It covers any downpayment made and includes all payments actually or
constructively received during the year of sale, the aggregate of which determines
the limit set by law.
Initial payments do not include the amount of mortgage on the real property
sold except when such mortgage exceeds the cost or other basis of the property to
the seller, in which case, the excess shall be considered part of the initial
payments.
Also excluded from initial payments are notes or other evidences of

indebtedness issued by the purchaser to the seller at the time of the sale.
Pre-selling of real estate properties by real estate dealers shall be subject to

VAT in accordance with rules prescribed above.
"Real estate dealer" includes any person engaged in the business of buying,
developing, selling, exchanging real properties as principal and holding himself
out as a full or part-time dealer in real estate.
Transmission of property to a trustee shall not be subject to VAT if the

property is to be merely held in trust for the trustor and/or beneficiary.
SECTION 4.100-2. Zero-rated Sales. A zero-rated sales by a

VAT-registered person, which is a taxable transaction for VAT purposes, shall not
result in any output tax. However, the input tax on his purchases of goods,
properties or services related to such zero-rated sale shall be available as tax credit
or refund in accordance with these regulations.
The following sales by VAT-registered persons shall be subject to 0%:
(a) Export sales
"Export Sales" shall mean:
(1) The sale and actual shipment of goods from

the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the
goods so exported 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) The sale of raw materials or packaging

materials to a non-resident buyer for delivery to a resident
local export oriented enterprise to be used in
manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(3) The sale of raw materials or packaging

material to an export-oriented enterprise whose export
sales exceed seventy percent (70%) of total annual
production;
Any enterprise whose export sales exceed 70% of the total annual
production of the preceding taxable year shall be considered an
export-oriented enterprise upon accreditation as such under the provisions of
the Export Development Act (R.A. 7844) and its implementing rules and
regulations.
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);

and
(5)
Those considered export sales under Articles 23
and 77 of Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other special laws, e.g.
Republic Act No. 7227, otherwise known as the Bases
Conversion and Development Act of 1992.
"Considered export sales under Executive Order No. 226 "
shall mean the Philippine port F.O.B. value, determined from invoices, bills
of lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by a registered
export producer or the net selling price of export products sold by a
registered export producer to another export producer, or to an export
trader that subsequently exports the same: Provided, That sales of export
products to another producer or to an export trader shall only be deemed
export sales when actually exported by the latter, as evidenced by landing
certificates or similar commercial documents: Provided, further, That
without actual exportation the following shall be considered constructively
exported for purposes of these provisions: (1) sales to bonded
manufacturing warehouses of export-oriented manufacturers; (2) sales to
export processing zones; (3) sales to registered export traders operating
bonded trading warehouses supplying raw materials in the manufacture of
export products under guidelines to be set by the Board in consultation with
the Bureau of Internal Revenue and the Bureau of Customs; (4) sales of
foreign military bases, diplomatic missions and other agencies and/or
instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency or not:
Provided, further, that export sales of registered export traders may include
commission income: and Provided, finally, that exportation of goods on
consignment shall not be deemed export sales until the export products
consigned are in fact sold by the consignee.
(b) Foreign currency denominated sale, except those mentioned in

Sections 149 and 150 of the Code.
"Foreign currency denominated sale" means the sale to a

non-resident of goods, except those mentioned in Sections 149 and 150 of
the Code, assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).
Sales of locally manufactured or assembled goods for household and

personal use to Filipinos abroad and other non-residents of the Philippines
as well as returning Overseas Filipinos under the Internal Export Program
of the government paid for in convertible foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP) shall also be considered export sales.
(c) Sales to persons or entities whose exemption under special laws,

e.g. R.A. No. 7227 duly registered and accredited enterprises with
Subic Bay Metropolitan Authority (SBMA) and Clark Development
Authority (CDA), R.A. No. 7916, Philippine Economic Zone
Authority (PEZA), or international agreements, e.g. Asian
Development Bank (ADB), International Rice Research Institute (IRRI), etc.
to which the Philippines is a signatory effectively subject such sales to
zero-rate.
SECTION 4.100-3. Effectively Zero-rated Sale of Goods and

Properties. Effectively zero-rated sales of goods and properties shall refer to
the sale by a VAT-registered person to a person or entity who was granted indirect
tax exemption under special laws, e.g., RA 7227 or international agreements, e.g.,
ADB, IRRI. Under these Regulations, effectively zero-rated transactions shall
cover local sale of goods and properties to persons or entities who enjoy
exemptions from indirect taxes under par. (a) no. (3), pars. (b) and (c) of the
preceding section.
SECTION 4.100-4. "Transactions Deemed Sale". (a) The

following transactions shall be "deemed sale" pursuant to Section 100 (b) of
the Code:
(A) Transfer, use or consumption not in the course of business of

goods or properties originally intended for sale or for use in the course of
business. Transfer of goods or properties not in the course of business can
take place when the VAT-registered person withdraws goods from his
business for his personal use;
(B) Distribution or transfer to:
1) Shareholders or investors as share in the profits

of the VAT-registered person;
Property dividends which constitute stocks in trade

or properties primarily held for sale or lease declared out of
retained earnings on or after January 1, 1996 and distributed
by the company to its shareholders shall be subject to VAT
based on the zonal value or fair market value at the time of
distribution, whichever is applicable.
2) Creditors in payment of debt or obligation.
(C) Consignment of goods if actual sale is not made within 60 days

following the date such goods were consigned. Consigned goods returned by
the consignee within the 60-day period is not deemed sold;
(D) Retirement from or cessation of business with respect to all

goods on hand, whether capital goods, stock-in-trade, supplies or materials
as of the date of such retirement or cessation, whether or not the business is
continued by the new owner or successor. The following circumstances shall,
among others, give rise to transactions "deemed sale" for purposes of this
Section:
(i) Change of ownership of the business; and
(ii) Dissolution of a partnership other than a

general professional partnership and creation of a new
partnership which takes over the business.
(b) The Commissioner shall, by regulations, determine the appropriate tax

base in cases where a transaction is deemed a sale, barter or exchange of goods or
properties under paragraph (B) hereof, or where the gross selling price is
unreasonably lower than the actual market value.
SECTION 4.100-5. Changes in or Cessation of Status as a

VAT-registered Person. a) Subject to tax. The value-added tax provided for
in Sections 100 and 102 of the Code shall apply to services, goods, or
properties originally intended for sale or for use in business and capital goods
which are existing as of the occurrence of the following:
(1) Change of business activity from value-added taxable status to

exempt status. An example is a VAT-registered person engaged in a taxable
activity like wholesaler or retailer who decides to discontinue such activity
and engages instead in life insurance business or in any other business not
subject to VAT.
(2) Approval of a request for cancellation of registration due to

reversion to exempt status.
(3) Approval of a request for cancellation of registration due to a

desire to revert to exempt status after the lapse of two (2) consecutive years
from the time of registration by a person who voluntarily registered inspite of
being exempt under Section 103 (a), (b), (c) and (d)
of the Code with respect to his export sales only, and Section 103(t) of
the Code.
(4) Approval of a request for cancellation of registration of one

who commenced business with the expectation of gross sales or receipts
exceeding P500,000.00 but who failed to exceed this amount during
the first twelve months of operation.
(b) Not subject to output tax. The VAT shall not apply to goods or
properties existing as of the occurrences of the following:
1) Change of control of a corporation by the acquisition of the

controlling interest of such corporation by another stockholder or group of
stockholders, Example: transfer of property to a corporation in exchange for
its shares of stock under Section 34(c)(2) and (6)(c) of the Code.
2) Change in the trade or corporate name of the business.
3) Merger or consolidation of corporations. The unused input tax

of the dissolved corporation as of the date of merger or consolidation shall be
absorbed by the surviving or new corporation.
SECTION 4.100-6. Computation of Output Tax. The output tax on

the sale of goods or properties during the month or quarter shall be computed by
multiplying the total amount indicated in the invoice by 1/11. In taxable sales
of real property where the zonal value/market value applies, output tax shall be
computed by multiplying the zonal value or market value, as the case may be, by
1/11.
"Output tax" means the value-added tax due on the sale or lease of taxable
goods or properties or services by any person registered or required to register
under Section 107.
Where the gross selling price stated in the invoice is unreasonably lower
than the actual market value, the Commissioner shall by regulations determine the
appropriate tax base.
In computing the taxable base during the month or quarter, the following
shall be allowed as deductions from gross selling price:
(A) Discounts determined and granted at the time of sale which are
expressly indicated in the invoice, and the amount thereof forming part of the
gross sales duly recorded in the books of accounts.
Sales discount indicated in the invoice at the time of sale and the
grant of which does not depend upon the happening of a future event may be
excluded from the gross sales within the same month/quarter it was given.
(B) Sales returns and allowances for which a proper credit or refund
was made during the month or quarter to the buyer for sales previously
recorded as taxable sales.
(b) *(13) On transactions "deemed sale". The output tax

equivalent to 10% based on the market value of the goods deemed sold shall be
imposed as of the occurrence of the transactions enumerated in Section 4.100-4
(A), (B) and (C) of these Regulations. However, in the case of retirement from or
cessation of business under Section 4.100-4(D) of these Regulations, the tax base
shall be the acquisition cost or the current market price of the goods, whichever is
lower.
(c) Basis of tax arising from changes in or cessation of status of a

taxpayer as a VAT-registered person. The output tax on goods or
properties originally intended for sale or for use in business, including capital
goods, existing as of the time of the changes in or cessation of the status of a
taxpayer as a VAT-registered person, shall be based on the acquisition cost or the
current market price of the goods, whichever is lower.
Any unused input taxes as of the retirement, change or cessation of status as

VAT-registered person shall be allowed as credit against any output tax resulting
therefrom. The balance, if any, shall, subject to the filing of an application within
two years from date of retirement, cessation or change of status, be issued a tax
credit certificate which can be used a payment of any internal revenue tax due
from him or a tax refund, if he has no pending internal revenue tax liability.
SECTION 4.101-1. Value-Added Tax on Importation of Goods.

(a) In general. The VAT is imposed on goods and properties brought into
the Philippines, whether for use in business or not. The tax shall be based on the
total value, used by the Bureau of Customs in determining tariff and customs
duties, plus customs duties, excise tax, if any, and other charges prior to the
release of the goods or properties from customs custody such as postage,
commissions, and similar charges.
In case the valuation used by the Bureau of Customs in computing customs

duties is by volume or quantity, the landed cost shall be the basis for computing
the value added tax. Landed cost consists of the invoice amount, customs duties,
freight, insurance and other charges. If the goods imported are subject to excise
tax, the excise tax shall form part of the tax base.
Importation of petroleum products and the raw materials to be used by the

importer himself in the manufacture thereof, subject to excise tax under Title VI
of the Code, shall be exempt from VAT. However, VAT shall be collected
from the importer of lubricating oil, processed gas, grease, wax and petrolatum and
the raw materials to be used in the manufacture thereof.
(b) Applicability and Payment. The rates prescribed under Section 101
(a) shall be applicable to all importations withdrawn from customs custody.
The value-added tax on importation shall be paid by the importer prior to

the release of such goods from customs custody.
"Importer" refers to any person who brings goods into the Philippines,
whether or not made in the course of his trade or business. It includes non-exempt
persons or entities who acquire tax-free imported goods from exempt persons,
entities or agencies.
(c) Sale, transfer or exchange of imported goods by tax-exempt persons.

In the case of goods imported into the Philippines by VAT-exempt
persons, entities or agencies which are subsequently sold, transferred or exchanged
in the Philippines to non-exempt persons or entities, the latter shall be considered
the importers thereof who shall be liable for VAT on such importation.
SECTION 4.102-1. Value-Added Tax on the Sale of Services and Use

or Lease of Properties. (a) Sale or exchange of services, as well as the use
or lease of properties, as defined in Section 102 (a) of the Code shall be
subject to VAT.
"Sale or exchange of services" means the performance of all kinds of

services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by the following:
1) construction and service contractors;
2) stock, real estate, commercial, customs and immigration

brokers;
3) lessors of property, whether personal or real;
4) warehousing services;
5) lessors or distributors of cinematographic films;
6) persons engaged in milling, processing, manufacturing or

repacking goods for others;
7) Proprietors, operators, or keepers of hotels, motels, resthouses,

pension houses, inns, resorts;
8) proprietors or operators of restaurants, refreshment parlors,

cafes and other eating places, including clubs and caterers;
9) dealers in securities;
10) lending investors;
11) operators of taxicabs;
12) utility cars for rent or hire driven by the lessees (rent-a-car
companies), tourist buses;
13) other common carriers by land, air, and sea relative to their
transport of goods or cargoes;
14) franchise grantees of telephone and telegraph, radio and

television broadcasting and all other franchise grantees except
those under Section 117 and 118 of the Code;
15) banks, non-bank financial intermediaries, finance companies

and other financial intermediaries not performing
quasi-banking functions;
16) non-life insurance companies (except their crop insurances)

including surety, fidelity, indemnity and bonding companies;
and
17) similar services regardless of whether or not the performance

thereof calls for the exercise or use of the physical or mental
faculties.
The phrase "sale or exchange of services" shall likewise include:
(1) The lease or the use of or the right privilege to use any
copyright, patent, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;
(2) The lease or the use of, or the right to use any industrial,
commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial

knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to

and is furnished as a means of enabling the application or enjoyment of any
such property, or right as is mentioned in subparagraph (2) hereof or any
such knowledge or information as is mentioned in subparagraph (3) hereof;
or
(5) The supply of services by a non-resident person or his/its

employee in connection with the use of property or rights belonging to, or
the installation or operation of any brand, machinery or other apparatus
purchased from such nonresident person;
(6) The supply of technical advice, assistance or services rendered

in connection with technical management or administration of any scientific,
industrial or commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, film tapes and discs;
(8) The lease or the use of or the right to use radio, television,
satellite transmission and cable television time.
"Real estate lessor" includes any person engaged in the business of leasing
or subleasing real property.
Lease of property shall be subject to VAT regardless of the place where the
contract of lease or licensing agreement was executed if the property leased or
used is in the Philippines.
(b) The VAT on rental and/or royalties payable to non-resident foreign

corporations or owners for the sale of services and use or lease of properties in the
Philippines shall be based on the contract price agreed upon by the licensor and
the licensee. The licensee shall be responsible for the payment of VAT on such
rentals and/or royalties in behalf of the non-resident foreign corporation or owner
by filing a separate VAT declaration/return for this purpose. They duly validated
VAT declaration/return is sufficient evidence in claiming input tax credit by the
licensee.
"Non-resident lessor/owner" refers to any person, natural or juridical, an

alien, or a citizen who establishes to the satisfaction of the Commissioner the fact
of his physical presence abroad with a definite intention to reside therein, and who
owns/leases properties, real or personal, whether tangible or intangible, located in
the Philippines.
(c) In a lease contract, the advance payment by the lessee may be: (i) a
loan to the lessor from the lessee, or (ii) an option money for the property, or (iii) a
security deposit to insure the faithful performance of certain obligations of the
lessee to the lessor, or (iv) pre-paid rental.
If the advance payment is actually a loan to the lessor, or an option money

for the property, or a security deposit for the faithful performance of certain
obligations of the lessee, such advance payment is not subject to VAT.
However, a security deposit that is applied to rental shall be subject to

VAT.
If the advance payment is, in fact, a pre-paid rental, then such payment is
taxable to the lessor in the month or quarter when received regardless of the
accounting methods used.
(d) Non-life insurance companies including surety, fidelity, indemnity and
bonding companies are now subject to VAT. They are no longer liable to the
payment of the premium tax under Section 121 of the Code.
"Non-life insurance companies" including surety, fidelity, indemnity and

bonding companies shall include all individuals, partnerships, associations, or
corporations, including professional reinsurers defined in Section 280 of PD 612,
otherwise known as The Insurance Code of the Philippines, mutual benefit
associations and government-owned or controlled corporation, engaging in the
business of property insurance, as distinguished from insurance on human lives,
health, accident and insurance appertaining thereto or connected therewith.
Reinsurance premiums are subject to VAT.
The VAT due from the foreign reinsurance company is to be withheld by

the local insurance company and to be remitted to the BIR by filing a separate
VAT declaration/return.
Commissions of insurance agents and/or brokers are subject to VAT.
The gross receipts on non-life insurance companies shall mean total

premiums collected, whether paid in money, notes, credits or any substitute for
money.
"Gross receipts" refer to 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 advance payments actually or constructively received during the taxable
quarter for the services performed or to be performed for another person,
excluding VAT. It shall likewise refer to "gross income" as defined under Section
28 (a) of the Code, whenever applicable.
"Constructive receipt" occurs when the money consideration or its

equivalent is placed at the control of the person who rendered the service without
restrictions by the payor. The following are examples of constructive receipts:
1) deposit in banks which are made available to the seller of

services without restrictions;
2) issuance by the debtor of a notice to offset any debt or

obligation and acceptance thereof by the seller as payment for
services rendered; and
3) transfer of the amounts retained by the contractee to the
account of the contractor.
(e) Dealers in securities and lending investors shall be subject to VAT on

the basis of the gross income they derive, respectively, from their sale or exchange
of securities or their lending activities.
"Dealer in securities" means a merchant of stocks or securities, whether an

individual partnership or corporation, with an established place of business,
regularly engaged in the purchase of securities and their resale to customers, that
is, one who as a merchant buys securities and sells them to customers with a view
to the gains and profits that may be derived therefrom.
"Lending investor" include all persons; other than banks, non-bank

financial intermediaries, finance companies and other financial intermediaries not
performing quasi-banking functions, who make a practice of lending money for
themselves or others at interest.
In the case of pre-need companies, they shall be considered as dealers in

securities and their gross receipts shall mean actual receipts on contract price
minus contributions to the trust funds to be set up independently as mandated by
the Securities and Exchange Commission.
(f) Services of franchise grantees of telephone and telegraph, radio and

television broadcasting and all other franchise grantees except electric, gas and
water utilities shall be subject to VAT. However, they are no longer subject to the
franchise tax on their gross receipts derived from their franchised operations under
their respective charters or Section 117 of the Code. Amounts received for
overseas dispatch, message, or conversion originating from the Philippines are still
subject to the percentage tax under Sec. 118 of the Code.
Franchise grantees of telephone and telegraph shall be subject to VAT on

their gross receipts derived from their telephone, telegraph, telewriter exchange,
wireless and other communication equipment services.
(g) A person engaged in milling for others (except palay into rice, corn
into corn grits, and sugarcane into raw sugar) is subject to VAT on sale of services.
If the miller is paid in cash for his services, the VAT shall be based on his gross
receipts during the month or quarter. If he receives a share of the milled products,
instead of cash, the VAT shall be based on the actual market value of his share in
the milled products. Sale by the owner or the miller of his share of the milled
product (except rice, corn grits and raw sugar) shall be subject to VAT on sale of
goods.
(h) All receipts from service, hire, or operating lease of transportation

equipment not subject to tax on common carriers and keepers of garages, shall be
subject to VAT.
"Common carriers" refer to persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the public and
shall include transportation contractors.
Operators of taxicabs, utility cars for rent or hire driven by lessee, and
tourist buses, shall be subject to VAT but not to the percentage tax imposed under
Section 115 of the Code.
"Warehousing service" means rendering personal services of a

warehouseman such as:
1. engaging in the business of receiving and storing goods of

others for compensation or profit;
2. receiving goods and merchandise to be stored in his warehouse

for hire;
3. keeping and storing goods for others, as a business and for use.
SECTION 4.102-2. Zero-Rating. (a) In general. A zero-rated

sale by a VAT registered person, which is a taxable transaction for VAT purposes,
shall not result in any output tax. However, the input tax on his purchases of
goods, properties or services related to such zero-rated sale shall be available as
tax credit or refund in accordance with these regulations.
(b) Transactions subject to zero-rate. The following services

performed in the Philippines by VAT-registered persons shall be subject to 0%:
(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 BSP;
(2) Services other than those mentioned in the preceding

subparagraph, e.g., those rendered by hotels and other service establishments,
the consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP;
(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-rate;
(4) Services rendered to vessels engaged exclusively in international

shipping;
(5) Services performed by subcontractors and/or contractors duly

accredited by either the Board of Investments or the Export Development
Council in processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of the total annual
production.
(c) Effectively zero-rated sale of services. Effectively zero-rated sales

of services shall refer to the sale by a VAT-registered person to a person or entity
who was granted indirect tax exemption under special laws, or international
agreements. Under these Regulations, effectively zero-rated transactions shall be
limited to the local sale of services to persons or entities who enjoy exemptions
from indirect taxes under subpar. (b), Nos. (3), (4) and (5) of this section.
SECTION 4.103-1. Exemptions. (A) In general. An exemptions

means that the sale of goods or properties and/or services and the use or lease of
properties is not subject to VAT (output tax) and the seller is not allowed any tax
credit on VAT (input tax) previously paid.
The person making the exempt sale of good, properties or services shall not
bill any output tax to his customers because the said transaction is not subject to
VAT. On the other hand, a VAT-registered purchaser of VAT-exempt
goods/properties or services which are exempt from VAT is not entitled to any
input tax on such purchase despite the issuance of a VAT invoice or receipt.
(B) Exempt transactions. The following shall be exempt from the

VAT:
(a) Sale of nonfood agricultural, marine and forest products in their

original state by the primary producer or the owner of the land where the
same are produced. In the hands of a subsequent seller, the sale shall be
subject to VAT.
(b) Sale of cotton and cotton seeds in their original state; and copra
(c) 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 therefor. However, importation of meat shall be subject to
VAT.
Livestock shall include cows, bulls and calves, pigs, sheep, goats and
rabbits. Poultry shall include fowls, ducks, geese and turkey. (It does not
include fighting cocks, race horses, zoo animals and other animals generally
considered as pets.)
Marine food products shall include fish and crustaceans, such as, but
not limited to, eels, trout, lobsters, shrimps, prawns, oysters, mussels and
clams.
Meat, fruit, fish, vegetables and other agricultural and marine good
products, shall be considered in their original state even if they have
undergone the simple processes of preparation or preservation for the
market, such as freezing, drying, salting, smoking or stripping,
including those using advanced technological means of packaging, such as
shrink wrapping in plastics, vacuum packing, tetra-pak, and other similar
packaging methods.
Polished and/or husked rice, corn grits and locally produced raw cane
sugar and ordinary salt shall be considered as agricultural food products in
their original state.
Raw cane sugar refers to crystallized or solidified juice of sugarcane,

distinctly brown in color resulting from the simple and primary milling
process such as treating the juice with lime to remove impurities, boiling and
spinning the syrup to force out the molasses. It does not include cane sugar
commonly known as "washed sugar", "plantation washed sugar" and "blanco
directo" sugar, which are, for purposes of this exemption, considered as
refined sugar. Molasses and bagasse are not also covered by the
exemption.
(d) 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 horses, fighting cocks, aquarium fish,
zoo animals and other animals generally considered as pets);
"Specialty feeds" refer to non-agricultural feeds or food for race

horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets.
(e) Sale or importation of petroleum products (except lubricating

oil, processed gas, grease, wax and petrolatum) subject to excise tax imposed
under Title VI;
(f) Sale or importation of raw materials to be used by the buyer or

importer himself in the manufacture of petroleum products subject to excise
tax, except lubricating oil, processed gas, grease, wax and petrolatum;
(g) Importation of passenger and/or cargo vessel of more than five
thousand tons, whether coastwise or ocean going, including engine and spare
parts of said vessel to be used by the importer himself as operator thereof;
(h) 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 customs duties under the Tariff and Customs Code of the Philippines;
(i) Importation of professional instruments and implements,

wearing apparel, domestic animals, and personal household effects (except
any vehicle, vessel, aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in commercial quantity) belonging
to persons coming to settle in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such persons, or arriving within
ninety (90) days before or after their arrival, upon the production of evidence
satisfactory to the Commissioner of Internal Revenue, that such persons are
actually coming to settle in the Philippines and that the change of residence is
bonafide;
(j) Services subject to percentage tax under Title V, are as follows:
1. Sale or lease of goods or properties or the

performance of service other than the transactions
mentioned in paragraphs (a) to (s), Section 103, the
gross annual sales and/or receipts of which do not exceed
the amount of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) (Sec. 112, NIRC);
2. Keepers of garages and common carriers by

land, air or water for the transport of passenger (Sec. 115,
NIRC);
3. Franchise grantees on electric, gas and water

utilities (Sec. 117, NIRC);
4. Person, company or corporation (except purely

cooperative companies or associations) doing life insurance
business of any sort in the Philippines (Sec. 121,
NIRC);
5. Overseas dispatch, messages or

communications originating from the Philippines (Sec. 118,
NIRC).
(k) Services by agricultural contract growers and milling for others

of palay into rice, corn into grits, and sugar cane into raw cane sugar.
"Agricultural contract growers" refer to those producing for others

poultry, livestock or other agricultural and marine food products in their
original state.
(l) Medical, dental, hospital and veterinary services, except those

rendered by professionals.
Laboratory services are also exempted. If the hospital or clinic

operates a pharmacy or drug store, the sale of drugs and medicine, if it
exceeds P500,000.00 during a 12-month period, is subject to VAT.
(m) Educational services refer to academic, technical or vocational

education provided by private educational institutions duly accredited by the
DECS and those rendered by government educational institutions and shall
include the sale or rental of books used in the above activities by such
educational institutions. It does not include seminars, in-service training,
review classes and other similar services rendered by persons who are not
accredited by the DECS.
(n) Sale of works of art, literary works and musical compositions is

exempt only if sold by the artist himself. If sold by other persons in the course
of business, it shall be subject to VAT. If the services of the artist are
engaged for the production of such works, his receipts therefrom are exempt
from VAT.
(o) Services rendered by individuals pursuant to an

employer-employee relationship;
(p) Services rendered by regional or area headquarters established

in the Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not earn or derive income from
the Philippines;
(q) Transactions which are exempt under international agreements

to which the Philippines is a signatory, as well as under special laws, except
those granted under the following laws:
1. P.D. No. 66 Export Processing Zone Authority

(EPZA)-registered firms;
2. P.D. No. 529 Petroleum Exploration

Concessionaires under the Petroleum Act of 1949;
3. P.D. No. 972 Operators of Coal Mines;
4. P.D. No. 1491 Export-oriented industries in the

Phividec Industrial areas;
5. P.D. No. 1590 Philippine Airlines (PAL) relative to

domestic transport of goods or cargoes;
6. P.D. No. 6938 Non-electric cooperatives.
Cooperatives, except electric cooperative, duly registered under R.A.

No. 6938, otherwise known as the "Cooperative Code of the
Philippines", transacting business with members only or with both members
and non-members are subject to VAT.
"Non-electric cooperative" refers to a duly registered association of

persons entitled to such rights and privileges granted by Republic Act No.
6938, otherwise known as the Cooperative Code of the Philippines, which is
not formed primarily for the purpose of supplying, promoting and
encouraging the fullest use of electric service to its members pursuant to the
provisions of P.D. No. 269.
Importations by non-electric cooperatives under R.A. No. 6938 of

machinery, equipment and spare parts to be used by them are subject to
VAT.
Electric cooperatives are not subject to VAT on their sale of

electricity, however, their importations, regardless of whether or not the
goods are locally available, are subject to VAT.
(r) Export sales by persons who are not VAT-registered;
(s) Sale of real properties not primarily held for sale to

customers or held for lease in the ordinary course of trade or business or real
property utilized for low-cost housing under BP 220 or PD 957 and other
related laws and socialized housing as defined by RA No. 7279, otherwise
known as the "Urban Development and Housing Act of 1992 wherein the
price ceiling per unit is P375,000.00 for low-cost housing and P150,000.00
for socialized housing or may from time to time be determined by the
Housing and Land Use Regulatory Board (HLURB).
"Low-Cost housing" refers to housing projects intended for homeless

low-income family beneficiaries, undertaken by government or private
developers, which may either be a subdivision or a condominium, registered
and licensed by the Housing and Land Use Regulatory Board/Housing and
Urban Development Coordinating Council (HLURB/HUDCC) under BP
220, PD 957 or any other similar law, wherein the unit selling price is
within the selling price ceiling per unit of BP 220 as determined from time
to time by HLURB/HUDCC.
"Socialized housing" refers to housing programs and projects

covering houses and lots or homelots only undertaken by the Government or
the private sector for the underprivileged and homeless citizens which shall
include sites and services development, long-term financing, liberalized
terms on interest payments, and such other benefits in accordance with the
provisions of R.A. No. 7279 otherwise known as the "Urban Development
and Housing Act of 1992." "Socialized housing" shall also refer to projects
intended for the underprivileged and homeless wherein the housing package
selling price is within the lowest interest rates under the Unified Home
Lending Program (UHLP) or any equivalent housing program of the
Government, the private sector or non-government organizations.
Lease of residential units, boarding houses, dormitories, rooms and

bedspaces offered for rent by their owners at a monthly rental of not more
than amount allowed under the Rent Control Law (now equivalent to
P2,750.00 per month, subject to the annual adjustment provided under the
Rent Control Law), shall not be subject to VAT.
The term "residential units" shall refer to apartment, houses and/or

lands on which another's dwelling is located, used for residential purposes
and shall include not only buildings, parts or units thereof used solely as
dwelling places, except motels, motel rooms, hotels, and hotel rooms.
"Residential units" shall also include apartments, houses, building, parts or
units/thereof used for home industries, retail stores or other business
purposes if the tenant thereof and his family actually live therein and use
them principally for dwelling purposes.
(t) 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 of which do not exceed the
amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00).
The foregoing exemptions to the contrary notwithstanding, any

person whose sale of goods, properties or services which are otherwise not
subject to VAT, but who issues a VAT invoice or receipts therefor shall, in
addition to his liability to other applicable percentage tax, if any, be liable to
the tax imposed in Sections 100 or 102 of the Code without
the benefit of input tax credit, and such tax shall not also be
recognized as input tax credit to the purchaser under Section 104, of
the Code.
(u) Foreign and local donations to, as well as, by religious

institutions of religious articles, particularly bibles, crucifix, vestments or
similar articles, to be used actually, directly and exclusively for religious
purposes and not done in the ordinary course of trade or business.
(v) Sale of books, magazines, periodicals, newspapers, including

book publishing and printing, as well as its distribution and circulation,
except their importation, shall be exempt from the coverage of the expanded
value added tax law pursuant to R.A. 8047.
TAX CREDITS
SECTION 4.104-1. Credits for Input Tax.
"Input tax" means the value-added tax due from or paid by a

VAT-registered person on importation of goods or local purchases of goods or
services, including lease or use of property, from another VAT-registered person
in the course of his trade or business. It shall also include the transitional or
presumptive input tax determined in accordance with Section 105 of the
Code.
It includes input taxes which can be directly attributed to transactions

subject to the value-added tax plus a ratable portion of any input tax which cannot
be directly attributed to either the taxable or exempt activity.
Any input tax evidenced by a VAT invoice or official receipt issued by a

VAT-registered person in accordance with Section 108 of the Code, on the
following transactions, shall be creditable against the output tax:
(a) Purchase or importation of goods
1. For sale; or
2. For conversion into or intended to form part of a finished

product for sale, including packaging materials; or
3. For use as supplies in the course of business; or
4. For use as raw materials supplied in the sale of services; or
5. For use in trade or business for which deduction for

depreciation or amortization is allowed under the Code, except
automobiles, aircraft and yachts.
"Automobile" as contemplated in this section, shall mean a 4-wheeled

luxury motor vehicle, which is used in the trade or business of the VAT taxpayer,
propelled by any motive fuel with engine displacement of 2,000 cc or more, and
specially designed for the transport of persons and not used primarily for the
carrying of freight or merchandise; Provided, however, that the definition shall
not apply to those required in the trade or business of the VAT taxpayer, such as
hotel limousines, funeral hearse, ambulances and similar vehicles.
(b) Purchase of real properties for which a VAT has actually been paid;
(c) Purchase of services in which a VAT has actually been paid;
(d) Transactions "deemed sale" under Section 100 (b) of the Code;
(e) Presumptive input tax allowed to be carried over as provided for in

Section 4.105-1 of these Regulations;
(f) A VAT-registered person who is also engaged in transactions not

subject to VAT shall be allowed input tax credit as follows:
1. Total input tax which can be directly attributed to transactions

subject to VAT; and
2. A ratable portion of any input tax which cannot be directly

attributed to either activity.
SECTION 4.104-2. Persons who Can Avail of the Input Tax Credit.
The input tax credit on purchase of goods or properties or services shall be
creditable:
(a) To the purchaser of the domestic goods or properties upon

consummation of the sale and on the importation of said goods
or properties.
(b) To the importer upon payment of VAT prior to the release of

goods from Customs custody.
(c) To the purchaser of services or the lessee or licensee upon

payment of the compensation, rental, royalty or fee.
SECTION 4.104-3. Determination of Input Tax Deductible During a

Taxable Month or Quarter. All input taxes creditable to a
VAT-registered person during a taxable month or quarter plus any input tax carried
over from the preceding month or quarter shall be reduced by the amount of the
claim for refund or tax credit for VAT and other adjustments, such as, purchase
returns or allowances and input tax attributable to exempt sales.
The claim for tax credit shall include not only those filed with the Bureau
of Internal Revenue but also those filed with the Department of Finance, the Board
of Investments and the Bureau of Customs.
SECTION 4.104-4. Determination of the Output and Input Taxes and

Computation of VAT Payable or Excess Tax Credits. In the sale of
goods, properties or services, VAT is computed by multiplying the total amount
indicated in the invoice or receipt by 1/11. This is referred to as the "output tax".
In sale of real property subject to VAT where the zonal or market value applies,
the VAT is computed by multiplying the zonal or market value by 1/11.
The creditable input tax is the VAT on transactions enumerated in Section

4.104-1 of these Regulations.
If at the end of any taxable quarter, the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. This is termed as the VAT
payable. If, however, the input tax exceeds the output tax, the excess shall be
carried over the succeeding months or quarters.
SECTION 4.104-5. Substantiation of Claims for Input Tax Credit.

(a) Input taxes shall be allowed only if the domestic purchase of goods, properties
or services is made in the course of trade or business. The input tax should be
supported by an invoice or receipt showing the information as required under
Section 108 (a) and 238 of the Code. Input tax on purchases of real
property should be supported by a copy of the public instrument i.e. deed of
absolute sale, deed of conditional sale, contract/agreement to sell, etc., together
with the VAT receipt issued by the seller.
A cash-register machine tape issued to a VAT registered buyer by a

VAT-registered seller from a machine duly registered with the BIR in lieu of the
regular sales invoice, shall constitute valid proof of substantiation of tax credit
only if the name and TIN of the purchaser is indicated in the receipt and
authenticated by a duly authorized representative of the seller.
(b) Input tax on importations shall be supported with the import entry or
other equivalent document showing actual payment of VAT on the imported
goods.
(c) Presumptive input tax shall be supported by an inventory of goods as

shown in a detailed list to be submitted to the BIR.
(d) Input tax on "deemed sale" transactions shall be substantiated with the
required invoices.
(e) Input tax from payments made to non-residents shall be supported by a
copy of the VAT declaration/return filed by the resident licensee/lessee in behalf
of the non-resident licensor/lessor evidencing remittance of the VAT due.
SECTION 4.105-1. Transitional Input Tax on Beginning Inventories.

Taxpayers who became VAT-registered persons upon effectivity of RA
No. 7716 who have exceeded the minimum turnover of P500,000.00 or who
voluntarily register even if their turnover does not exceed P500,000.00 shall be
entitled to a presumptive input tax on the inventory on hand as of December 31,
1995 on the following: (a) goods purchased for resale in their present condition;
(b) materials purchased for further processing, but which have not yet undergone
processing; (c) goods which have been manufactured by the taxpayer; (d) goods in
process and supplies, all of which are for sale or for use in the course of the
taxpayer's trade or business as a VAT-registered person.
However, in the case of real estate dealers, the basis of the presumptive
input tax shall be the improvements, such as buildings, roads, drainage systems,
and other similar structures, constructed on or after the effectivity of E.O. 273
(January 1, 1988).
The transitional input tax shall be 8% of the value of the inventory or actual
VAT paid, whichever is higher, which amount may be allowed as tax credit
against the output tax of the VAT-registered person.
The value allowed for income tax purposes on inventories shall be the basis
for the computation of the 8% excluding goods that are exempt from VAT under
Sec. 103. Only VAT-registered persons shall be entitled to presumptive input tax
credits.
SECTION 4.106-1. Refunds or Tax Credits of Input Tax. (a)

Zero-rated sales of goods or properties or services Only a VAT-registered
person may be given a tax credit certificate or refund of VAT paid corresponding
to the zero-rated sales of goods, properties or services, excluding the presumptive
input tax and to the extent that such input tax has not been applied against the
output tax. The application should be made within two (2) years after the close of
the taxable quarter when the sales were made.
However, where the taxpayer is engaged in both zero-rated or effectively

zero-rated sales and in taxable or exempt sales of goods, properties or services,
and where the amount of creditable input tax due or paid cannot be directly and
entirely attributable to any one of the transaction, only the proportionate share of
input taxes allocated to zero-rated or effectively zero-rated sales can be refunded
or issued a tax credit certificate.
(b) Capital Goods Only a VAT-registered person may apply for

issuance of a tax credit certificate or refund of input taxes paid on capital goods
imported or locally purchased. The refund shall be allowed to the extent that such
input taxes have not been applied against output taxes. The application should be
made within two (2) years after the close of the taxable quarter when the
importation or purchase was made.
Refund of input taxes on capital goods shall be allowed only to the extent
that such capital goods are used in VAT taxable business. If it is also used in
exempt operations; the input tax refundable shall only be the ratable portion
corresponding to the taxable operations.
"Capital goods or properties" refer to goods or properties with estimated

useful life greater than one year and which are treated as depreciable assets under
Section 29 (f), used directly or indirectly in the production or sale of taxable
goods or services.
(c) Land Only a VAT-registered person may apply for issuance of a

tax credit certificate or refund of input taxes on land purchased to the extent that
such input tax has not been applied to output tax. The application should be made
within two (2) years after the close of the taxable quarter when the purchase was
made.
Refund of input taxes on land shall be allowed only to the extent that such
land is used in VAT taxable business.
(d) Any unused input taxes as of the date of retirement, change or

cessation of status of a VAT-registered person shall be allowed as credit against
any output tax resulting from such change of status and the balance, if any, shall,
subject to the filing of an application within two (2) years from the date of
retirement, change or cessation of status, be issued a tax credit certificate/refund.
SECTION 4.106-2. Procedures for Claiming Refunds or Tax Credits

of Input Tax. (a) Where to file the claim for refund or tax credit
Claims for refunds or tax credit shall be filed with the appropriate Revenue
District Office (RDO) having jurisdiction over the principal place of business of
the taxpayer. However, direct exporters may also file their claim for tax credit with
the One Stop Shop Center of the Department of Finance.
(b) Cancellation of VAT registration A person whose registration has

been cancelled due to retirement from or cessation of business, or due to changes
in or cessation of status under Section 100(c) of the Code may, within two (2)
years from the date of cancellation, apply for the issuance of a tax credit certificate
for any unused input tax which he may use in payment of his other internal
revenue taxes. However, he shall be entitled to a refund if he has no pending
internal revenue tax liabilities.
(c) Period within which refund or tax credit of input taxes shall be made.
In proper cases, the Commissioner shall grant a tax credit/refund for creditable
input taxes within sixty (60) days from the date of submission of complete
documents in support of the application filed in accordance with subparagraphs (a)
and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided
by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of
Tax Appeals within thirty (30) days from the receipt of said denial, otherwise the
decision will become final. However, if no action on the claim for tax
credit/refund has been taken by the Commissioner of Internal Revenue after the
sixty (60)-day period from the date of submission of the application but
before the lapse of the two (2)-year period from the date of filing of the VAT
return for the taxable quarter, the taxpayer may appeal to the Court of Tax
Appeals.
(d) Manner of giving refund. Refund shall be made upon

warrants drawn by the Commissioner or by his duly authorized representative
without the necessity of being countersigned by the Chairman, Commission on
Audit (COA), the provision of the Revised Administrative Code to the contrary
notwithstanding: Provided, that refunds under this paragraph shall be subject to
post audit by the COA.
COMPLIANCE REQUIREMENTS
SECTION 4.107-1. Registration of Value Added Taxpayers.

(a) In general. Any person who sells, barters, exchanges, leases goods or
properties and renders services subject to VAT imposed in Sections 100 and
102 of the Code shall register with the appropriate Revenue District Officer
using BIR Form No. 1556 and pay an annual registration fee in the amount of One
thousand pesos (P1,000) using BIR Form No. 1558 for every separate or
distinct establishment or place of business and every year thereafter on or before
the 31st day of January.
However, at the option of the taxpayer, payment may be made on a

quarterly basis in the amount of P250.00 payable on or before the 31st day of
January for the first quarter and on or before the 20th day of the first month of the
calendar quarter thereafter. Provided further, that a new taxpayer who registers
after the first calendar quarter shall pay a registration fee in an amount
proportionate to the remaining quarters of the year.
"Separate or distinct establishment" shall mean any branch or warehouse

where a taxpayer conducts his business operation.
"Branch" means a fixed establishment in a locality which conducts sales

operation of the business as an extension of the principal office.
"Principal place of business" refers to the place where the head or main
office is located as appearing in the corporation's Articles of Incorporation. In the
case of an individual, the principal place of business shall be the place where the
head or main office is located and where the books of accounts are kept.
"Warehouse" means the place or premises where the inventory of goods for
sale are kept and from which such goods are withdrawn for delivery to customers,
dealers, or persons acting in behalf of the business.
Any person who maintains a head or main office and branches in different
places shall register with the Revenue District Office which has jurisdiction over
the place wherein the main or head office or branch is located. However, the
registration fee shall be paid to any accredited bank in the Revenue District where
such person is registered provided that in areas where there are no accredited
banks, the same shall be paid to the Revenue District Officer, collection agent, or
duly authorized treasurer of the municipality where each place of business or
branch is situated.
Each VAT-registered person shall be assigned only one Taxpayer's

Identification Number (TIN).
"VAT-registered person" refers to any person registered in accordance with

Sec. 107.
"VAT-registrable person" refers to any person who is required to register

under the provisions of Section 107 (a), (b) or (c), as amended, but failed to
register.
(b) Mandatory:
1) Persons covered. Every person who, in the course of trade or

business, sells, barters, exchanges, leases goods, properties or renders services
subject to VAT, if the aggregate amount of his actual or expected gross sales
and/or gross receipts exceeds FIVE HUNDRED THOUSAND PESOS
(P500,000.00) for any 12-month period;
2) Persons first beginning business. Any person, before

engaging in the business of selling or leasing goods, properties or services subject
to VAT under Sections 100 and 102 of the Code, whose expected gross sales or
receipts on all taxable activities for the next 12-month period shall exceed
P500,000.00, must register and pay the applicable registration fee within 30 days
before the start of such business in the manner prescribed under Sec. 4.107-1.
3) Persons becoming liable to the Value-added tax. Any person

whose gross taxable sales or receipts in any 12-month period exceeds the amount
of P500,000.00 shall register within thirty (30) days after the end of the last month
of that period and pay the applicable registration fee in the manner prescribed
under Sec. 4.107-1; and shall be liable to the value-added tax commencing from
the first day of the month following his registration.
(c) Optional Registration of VAT-Exempt Person. Any of the following

VAT-exempt persons may, at their option, apply for VAT Registration:
1) Seller of goods, properties or services whose taxable sale or gross

receipts do not exceed FIVE HUNDRED THOUSAND PESOS (P500,000.00) for
any 12-month period;
2) Export seller of agricultural and marine food products in their original

state;
3) Export seller 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;
4) Export seller of non-food agricultural products, marine and forest

products in their original state by the primary producer or owner of the land where
the same are produced;
5) Export seller of cotton and cotton seeds in their original state; and
copra.
Once registered as a VAT person, the taxpayer shall be liable to output tax
and be entitled to input tax credit in accordance with the provisions of Secs. 104
and 105 of the Tax Code.
(d) Application for effective zero-rating. Except for actual export sale,
other cases of zero-rated sales in Sec. 4.100-3 and Sec. 4.102-2 (c) shall require
prior application with the Revenue District Office for effective zero-rating.
Without an approved application for effective zero-rating, the transaction
otherwise entitled to zero-rating shall be considered exempt.
SECTION 4.107-2. Non-VAT Registration. Every person,

other than those required to be registered as VAT persons, engaged in any
business, shall, on or before the commencement of his business, or whenever he
transfers to another revenue district, register with the Revenue District Office
concerned within 10 days from the commencement of business or transfer in the
manner prescribed under Sec. 4.107-1 and shall pay the applicable registration fee
for every separate or distinct establishment or place of business. The fee
shall be paid to any accredited bank, where each place of business or branch is
situated. In areas where there is no accredited bank, such person shall pay the fee
prescribed herein with the Revenue District Officer, collection agent, or authorized
municipal treasurer. The registration shall contain his name or style, place of
residence, business, the place where such business is carried on, and such other
information as may be required by the Commissioner in the form prescribed
therefor.
The following are required to register as non-VAT persons:
1. VAT-exempt persons under Section 103 (a), (b), (c), (d) and (t)
of the Code who did not opt to register as VAT
taxpayers;
2. Persons engaged in trade or business, or exercise of profession,

other than those subject to VAT and other percentage taxes
under Title V of the Code;
3. Individuals engaged in business where the gross sales or

receipts do not exceed P100,000.00 during any 12-month
period. They are required to register but will not be made to pay
the registration fee of P1,000.00.
4. Non-stock, non-profit organizations and associations engaged in

trade or business whose gross sales or receipts do not exceed
P500,000.00 for any 12-month period.
SECTION 4.107-3. Application for Registration. The application

shall be filed with the Revenue District Office where the principal place of
business, branch, storage place or premises is located, as the case may be, before
commencement of business or production or qualification as a withholding agent.
In the case of storage places, the application shall be filed within thirty (30) days
from the date the aforesaid premises have been used for storage.
In any case, the Commissioner may, for administrative reasons, deny or

revoke any application for registration.
SECTION 4.107-4. Certificate of Registration. The certificate

(BIR Form No. 1556) shall be issued to the applicant by the Revenue District
Officer concerned upon compliance with the requirement for registration.
SECTION 4-107-5. Posting of Registration Certificate. Every
registered taxpayer shall post or exhibit his Registration Certificate and duly
validated Registration Fee Return at a conspicuous place in his principal place of
business and at each branch in such a way that is clearly and easily visible to the
public.
SECTION 4.107-6. Cancellation of Registration. Any subsequent

major change in the original registration shall be effected by filing a duly
accomplished Application for Cancellation of Registration (BIR Form 1557) with
the Revenue District Officer concerned.
Some instances where a VAT-registered person may apply for cancellation

of registration are:
1. A person has retired from business;
2. A person's business has become exempt in accordance with

Section 4.100-5(b) of these regulations;
3. A change in the nature of the business itself from sale of taxable

goods and/or services to exempt sales and/or services;
4. A change of ownership, in the case of a single proprietorship;
5. Dissolution of a partnership or corporation;
6. Merger or consolidation with respect to the dissolved

corporation(s);
7. A person who has registered prior to planned business

commencement, fails to actually start his business;
8. A person whose transactions are exempt from VAT under

Section 103(a), (b), (c), (d) and (t) who voluntarily
registered under the VAT system, who after the lapse of two
years, applies for cancellation of his registration as such;
9. A VAT registered person whose gross sales or receipts for two

consecutive years did not exceed P500,000.00; and
10. A VAT-registered person whose gross sales or receipts did not

exceed P500,000.00 during his first 12 months in business.
Upon cancellation of registration under (9) and (10) above, the taxpayer
shall become liable to the percentage tax imposed in Section 112 of the
Code. A final VAT return for the remaining period that he was registered shall be
filed within twenty (20) days from the date of cancellation of his registration.
For purposes of the percentage tax, the taxpayer shall file quarterly return
corresponding to the quarter of the taxable year adopted by him for income tax
purposes. An initial return shall be filed corresponding to the period from the date
of cancellation of his registration up to the end of his initial quarter.
All applications for cancellation of registration due to closure/cessation or

termination of business shall be subjected to immediate investigation by the RDO
concerned to determine the taxpayer's tax liabilities.
Any minor change in the original registration (such as change of

address within the same RDO, typographical errors, and etc.) which may not
necessitate cancellation of the registration shall be effected by accomplishing the
Registration Change Form.
VAT INVOICE OR RECEIPT
SECTION 4.108-1. Invoicing Requirements. All VAT-registered

persons shall, for every sale or lease of goods or properties or services, issue duly
registered receipts or sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of

service;
4. the name, TIN, business style, if any, and address of the

VAT-registered purchaser, customer or client;
5. the word "zero rated" imprinted on the invoice covering

zero-rated sales; and
6. the invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or
market value is higher than the actual consideration, the VAT shall be separately
indicated in the invoice or receipt.
Only VAT-registered persons are required to print their TIN followed by

the word "VAT" in their invoices or receipts and this shall be considered as a
"VAT Invoice". All purchases covered by invoices other than "VAT Invoice" shall
not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue

separate invoices or receipts for the taxable and exempt operations. A "VAT
Invoice" shall be issued only for sales of goods, properties or services subject to
VAT imposed in Sections 100 and 102 of the Code.
The invoice or receipt shall be prepared at least in duplicate, the original to

be given to the buyer and the duplicate to be retained by the seller as part of his
accounting records.
SECTION 4-108-2. Invoicing and Recording "Deemed Sale

Transactions". In the case of Section 4.100-4 (A) of these Regulations, a
memorandum entry in the subsidiary sales journal to record withdrawal of goods
for personal use is required. In the case of Section 4.100-4(B) and (C) of these
Regulations, an invoice shall be prepared at the time of the occurrence of the
transaction, which should include, all the information prescribed in Sec. 4.108-1.
The data appearing in the invoice shall be duly recorded in the subsidiary sales
journal. The total amount of "deemed sale" shall be included in the return to be
filed for the month or quarter.
In the case of Sec. 4.100-4(D), an inventory shall be prepared and submitted

to the Revenue District Officer who has jurisdiction over the taxpayer's principal
place of business not later than 30 days after the retirement or cessation from
business.
An invoice shall be prepared for the entire inventory, which shall be the
basis of the entry into the subsidiary sales journal. The invoice need not enumerate
the specific items appearing in the inventory, but it must show the total amount. It
is sufficient to just make a reference to the inventory regarding the description of
the goods. However, the sales invoice number should be indicated in the inventory
filed and a copy thereof shall form part of this invoice. If the business is to be
continued by the new owners or successors, the entire amount of output tax on the
amount deemed sold shall be allowed as input taxes. If the business is to be
liquidated and the goods in the inventory are sold or disposed of to VAT-registered
buyers, an invoice or instrument of sale or transfer shall be prepared, citing the
invoice number wherein the tax was imposed on the deemed sale. At the same time
the tax paid corresponding to the goods sold should be separately indicated in the
instrument of sale.
SECTION 4.108-3. Accounting Requirements. Notwithstanding

the provisions of Section 233, all persons subject to VAT under Sections
100 and 102 of the Code shall, in addition to the regular accounting
records required, maintain a subsidiary sales journal and subsidiary purchase
journal on which the daily sales and purchases are recorded. The subsidiary
journals shall contain such information as may be required by the Commissioner of
Internal Revenue.
SECTION 4.109-1. Change of Address or Principal Place of

Business. Whenever a VAT-registered person changes his principal place of
business, he should file a notice in the prescribed form within fifteen (15) days
from the date such change was made. If the change of address is within the
revenue district, the notification shall be filed with the Revenue District Officer in
that district. However, if the change of address is from one revenue district to
another revenue district, both Revenue District Officers should be notified by
filing an application for cancellation with the former and a new application for
registration with the latter. In the case of change of place of business of branches
or creation of a new branch, the Revenue District Officer where his principal place
of business is situated shall be notified.
SECTION 4.110-1. Filing of Return and Payment of VAT.
A) Filing of Return Every person liable to pay VAT shall file a

quarterly return of the amount of his gross sales or receipts within twenty (20)
days following the close of calendar quarter.
B) Payment of VAT. All persons liable to VAT shall pay the tax
monthly based on the taxable sales/receipts for the month, using the monthly VAT
declaration form within twenty five (25) days after the end of the month.
The declaration shall be accomplished only for the first two months of each
calendar quarter.
The VAT payable (output tax less input tax) for each calendar quarter shall
be reduced by the total amount of the tax(es) previously paid for the preceding two
months and/or the sum of the excess input taxes allowed under Title IV of the
Code.
C) Short Period Return. Any person who retires from business or

whose registration has been cancelled shall file a final quarterly return and pay the
tax due thereon within twenty (20) days from the end of the quarter when
the business ceased operation and the registration officially cancelled. Thus, if a
taxpayer's Certificate of Registration is cancelled on November 30, 1995, he shall
file his final quarterly VAT return and pay the tax on or before January 20, 1996.
All persons first registered under Sections 4.107-1(b)(3) and 4.107-1 (c) of
these Regulations shall be liable to VAT on the effective date of registration stated
in their Certificates of Registration; i.e., the first day of the month following their
registration. If the effective date of registration falls on the first or second month of
a calendar quarter, the initial VAT monthly declaration shall be filed within twenty
five (25) days after the end of the month, and the initial quarterly return
shall be filed on or before the 20th day after the end of the calendar quarter.
On the other hand, if the effective date of registration falls on the third month of
the calendar quarter, the quarterly return shall be filed on or before the 20th day
of the month following the end of the quarter, and no VAT monthly
declaration need be filed.
D) Where to file and pay. The monthly VAT declaration and

quarterly return shall be filed with, and the VAT due thereon paid to, a bank duly
accredited by the Commissioner located in the revenue district where such person
is registered or required to be registered.
In cases where there are no duly accredited agent banks within the
municipality or city, the monthly VAT declaration and quarterly VAT return, shall
be filed with and any amount due shall be paid to the Revenue District Officer,
Collection Agent or duly authorized Treasurer of the Municipality where such
taxpayer has his principal place of business.
In areas where there are accredited banks, the quarterly VAT return, where
no payment is involved shall be filed with any accredited bank in the Revenue
District where the principal place of business of the taxpayer is registered.
However, the monthly VAT declaration, where no payment is involved, shall be
filed with the Revenue District Officer where the principal place of business of the
taxpayer is registered.
SECTION 4.110-2. Indication of Taxpayer Identification Number

(TIN). For tax identification purposes, any person required under the
authority of the Code to make, render, or file a return, statement, or a document,
shall be supplied with or assigned a TIN, which shall be indicated on such return,
statement or document.
Any person who shall secure more than one TIN or who fails to indicate his
correct TIN as required in the foregoing paragraph, shall be criminally liable under
the provision of Section 274 of the Code.
SECTION 4.110-3. Withholding of Creditable Value-Added Tax.

(a) The government or any of its political subdivisions, instrumentalities
or agencies, including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of its purchase of goods from sellers
and/or services rendered by contractors which are subject to the VAT imposed in
Secs. 100 and 102 of the Code, deduct and withhold the VAT due at
the rate of three percent (3%) of the gross payment for the purchase of goods and
six percent (6%) on gross receipts for the services rendered by contractors on
every sale or installment payment which shall be creditable against the VAT
liability of the seller or contractors pursuant to RA 7649 as implemented by
Revenue Regulations No. 10-93; Provided, That payment of P1,000.00 and
below per purchase shall not be subject to withholding tax.
(b) The lessee or licensee, with respect to lease or use of property or

property rights owned by the non-residents, or the local insurance company, with
respect to reinsurance premiums payable to non-resident reinsurance companies,
shall, before making payment, withhold and remit the 10% VAT due thereon by
filing a separate VAT return for and in behalf of the payee.
SECTION 4.111-1. Administrative and Penal Provisions.

(a) Suspension of business operations. In addition to other administrative
and penal sanctions provided for in the Code and implementing regulations, the
Commissioner or his duly authorized representative may order the suspension or
closure of a business establishment for a period of not less than five (5) days for
any of the following violations:
(1) Failure to issue receipts and invoices.
(2) Failure to file value-added tax return as required under the

provisions of Section 110.
(3) Understatement of taxable sales or receipts by 30% or more of

his correct taxable sales or receipt for the taxable quarter.
(4) Failure of any person to register as required under the

provisions of Sec. 107.
(b) Surcharge, interest and other penalties. The interest on unpaid

amount of tax, civil penalties and criminal penalties imposed in Title X of
the Tax Code shall also apply to violations of the provisions of Title IV of
the Code.
SECTION 4.112-1. Tax on Persons Exempt from VAT. Any

person whose sales or receipts are exempt under Section 103 (t) of the Code
from payment of VAT and who is not a VAT-registered person shall pay a tax
equivalent to three percent (3%) upon the effectivity of the Act and four percent
(4%) two years thereafter of his gross quarterly sales or receipts.
SECTION 4.112-2. Transactions Exempt from VAT and from

Percentage Tax. Any individual engaged in business or businesses where the
aggregate gross sales or receipts do not exceed P100,000.00 during any 12-month
period shall be exempt from the payment of VAT and from any percentage tax
imposed under the NIRC.
TRANSITORY PROVISIONS
(a) Presumptive Input Tax Credits
(i) For goods, materials or supplies not for sale but purchased for
use in business in their present condition, which are not
intended for further processing and are on hand as of December
31, 1995, a presumptive input tax equivalent to 8% of the value
of the goods or properties shall be allowed.
(ii) For goods or properties purchased with the object of resale in

their present condition, the same presumptive input tax
equivalent to 8% of the value of the goods unused as of
December 31, 1995 shall be allowed, which amount may also
be credited against the output tax of a VAT-registered person.
(iii) For real estate dealers, the presumptive input tax of 8% of the
book value of improvements constructed on or after January 1,
1988 (the effectivity of E.O. 273) shall be allowed.
For purposes of sub-paragraphs (i), (ii) and (iii) above, an inventory as of

December 31, 1995 of such goods or properties and improvements showing the
quantity, description, and amount should be filed with the RDO not later than
January 31, 1996.
In recognizing presumptive input tax as of December 31, 1995, a journal

entry should be made in the books debiting the input tax account and crediting the
inventory account.
(b) Registration and Payment of Registration Fee. All VAT and

non-VAT taxpayers are required to register anew under these Regulations not later
than January 31, 1996 and pay the applicable registration fee.
During the transitory period, the following guidelines shall be followed:
i) VAT taxpayers under E.O. 273 (Old Law). Those who

have not registered under RMO 41-94 are required to
register as VAT taxpayers not later than January 31, 1996 and
pay the applicable registration fee. However, those who already
registered need not register anew, in which case, the registration
fee already paid shall be automatically credited against the 1996
annual registration fee.
ii) Non-VAT taxpayers becoming liable to VAT under RA 7716.

Those who have not registered under RMO 41-94 are
required to register as VAT taxpayers not later than January 31,
1996 and pay the applicable registration fee. However, those
who already registered need no register anew, in which case,
the registration fee already paid shall be automatically credited
against the 1996 annual registration fee.
iii) VAT taxpayers who cease to become VAT liable under RA 7716.
These who have not applied for cancellation of their VAT
registration and have not register as Non-VAT taxpayer shall
apply for cancellation of their VAT registration, register as
Non-VAT taxpayer and pay the applicable registration fee.
However, those who have already applied for cancellation of
their VAT registration and registered as Non-VAT taxpayer
need not register anew, in which case, the registration fee
already paid shall be automatically credited against the 1996
iv) Other Non-VAT taxpayers including those enjoying deferment

under Sec. 17, of RA 7716. Those who failed to register
under RMO 41-94, shall register as Non-VAT taxpayer not
later than January 31, 1996. However, those who have
registered need not register anew, in which case, the registration
fee already paid shall be automatically credited against the 1996
Taxpayers who have registered as VAT/Non-VAT taxpayer under RMO

41-94 and subsequently cancelled the same as consequence of the Temporary
Restraining Order shall register again as VAT/Non-VAT taxpayer not later than
January 31, 1996.
(c) Unused invoices or receipts. Taxpayers who changed status from

NON-VAT to VAT or from VAT to NON-VAT as a result of the implementation
of RA 7716 should submit on or before January 31, 1996 an inventory of unused
invoices or receipts as of December 31, 1995 indicating the number of booklets
and the corresponding serial numbers. Unused non-VAT invoices/receipts shall be
allowed for use in transactions subject to VAT provided the phrase
"VAT-registered as of __________" is stamped on all copies thereof. Likewise,
unused VAT invoices/receipts shall be allowed in VAT-exempt transactions
provided the phrase "Non-VAT registered as of __________" is stamped on all
copies thereof. These unused invoices or receipts with the proper stamp shall be
allowed for use in transactions subject to VAT/NON-VAT up to June 30, 1996.
(d) Billed but uncollected sale of services. Amounts due on sale of

services becoming liable to VAT under RA 7716 rendered on or before December
31, 1995, payments of which are receivable on or after January 1, 1996, shall be
considered as accrued as of December 31, 1995 for the purpose of VAT exemption
and payment of any applicable percentage tax subject to the following conditions:
(i) An information return shall be filed showing the name(s) of the

contractee(s), client(s), customer(s) and the amount(s) of the
contract price outstanding as of December 31, 1995, and
containing a declaration of the obligation to pay the applicable
percentage tax due, if any;
(ii) The seller billed the unpaid amount not later than December 31,
1995, and a copy of such billing is attached to the information
return required in (i) hereof;
(iii) The seller has recorded in his books of accounts for the year
1995 the amount receivable; and
(iv) The seller files not later than January 20, 1996, or on or before
the 20th day after each calendar quarter, the regular percentage
tax return for the payment of the percentage tax on payments
received in 1996.
Failure to comply with the above-stated conditions shall automatically

subject the gross receipts to the value added tax.
(e) Penalties. Those who, pursuant to RA 7716, are engaged in

transaction subject to VAT but failed to register shall nevertheless be liable to
output VAT starting January 1, 1996. They cannot pass on the said output VAT to
their customers nor claim input VAT credit for purchases of goods, properties and
services from VAT-registered suppliers. Moreover, buyers cannot claim input tax
credit for purchases of goods from VAT-registrable sellers who failed to register.
(f) Tax credit on overpayment of registration fee of P1,000.00. Those

who have overpaid their registration fee shall be allowed an automatic tax credit
against their succeeding years registration fee upon presentation of proof of
payment.
(g) Importation. Importation of goods previously exempt but are now

subject to VAT under RA 7716 shall, upon withdrawal from customs custody on
or after January 1, 1996, be subject to VAT. On the other hand, importation of
goods previously taxable but are now exempt under RA 7716 shall, upon
withdrawal from customs custody on or after January 1, 1996, be exempt from
VAT.
Repealing Clause. All regulations, rulings, orders or portions thereof

which are inconsistent with the provisions of these regulations are hereby revoked
and/or amended.
R.A. No. 7716 expressly repealed certain paragraphs of Article 39 of

Executive Order No. 226, otherwise known as the Omnibus Investment
Code of 1987, to wit:
1. "Paragraph (c)" which refers to exemption from customs duty

and tax on imported capital equipment;
2. "Paragraph (d)" which refers to tax credit on domestic capital

equipment; and
3. "Paragraph (e)" which refers to exemptions on contractor's tax

(now VAT).
Enterprises registered with BOI under EO 226, as amended by RA 7918,

on or before December 31, 1994 shall continue to enjoy the above benefits
and incentives. However, enterprises registered with BOI after December 31,
1994, shall no longer enjoy the above incentives starting January 1, 1996.
Effectivity. These Regulations shall take effect fifteen (15) days after
publication in a newspaper of general circulation in the Philippines. Provided,
however, that the provisions of these Regulations shall be implemented beginning
January 1, 1996.
ROBERTO F. DE OCAMPO
Secretary of Finance
Commissioner of Internal Revenue
Executive Order No, 273 (VAT) Republic Act No. 7716 (EVAT)
Sec. 99. Persons Liable. Any person who, Sec. 99. Persons Liable Any person
in the course of trade or business, sells, who, in the course of trade or business,
barters or exchanges goods, renders sells, barters, exchanges, leases goods or
services, or engaged in similar transactions properties, renders services, and any
and any person who imports goods shall person who imports goods shall be liable to
be subject to VAT imposed in Sec. the VAT imposed in Sec. 100 to
100 to 102 of this Code. 102 of this Code.
The VAT is an indirect tax and the amount

of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods,
properties or services. This rule shall
likewise apply to existing contracts of sale
or lease of goods, properties or services at
the time of the effectivity of this Act.
The phrase in the course of trade or

business means the regular conduct or
pursuit of a commercial or an economic
activity, including transactions incidental
thereto, by any person regardless of
whether or not the person engaged therein
is a non-stock, non-profit private
organization (irrespective of the disposition
of its net income and whether or not it sells
exclusively to members or their guests), or
government entity.
The rule of regularity, to the contrary,

notwithstanding, services as defined in this
Code rendered in the Phils. by nonresident
foreign persons shall be considered as being
rendered in the course of trade or business.
Sec. 100. Value added tax on goods. Sec. 100 Value-added tax on sale of
a) Rate and base of tax. There shall goods or properties. a) Rate and base
be levied, assessed and collected on every of tax. There shall be levied, assessed
sale, barter or exchange of goods, a VAT and collected on every sale, barter or
equivalent to 10% of the gross selling price exchange of goods or properties, a
or gross value in money of the goods sold, VAT equivalent to 10% of the gross selling
bartered or exchanged, such tax to be paid price or gross value in money of the goods
by the seller or transferor, Provided, that or properties sold, bartered or exchange,
the following sales by VAT-registered such tax to be paid by the seller or
persons shall be subject to 0%. transferor.
1) export sales; and 1) The term 'goods or properties'

2) sales to persons or entities shall mean all tangible and intangible
whose exemption under special laws or objects which are capable of pecuniary
international agreements to which the Phils. estimation and shall include:
is a signatory effectively subjects such sale a) Real properties held primarily for
to zero rate. sale to customers or held for lease
in the ordinary course of trade or business;
'Export sales' means the sale and b) The right or the privilege to use patent,
shipment or exportation of goods from copyright, design or model, plan, secret
the Phils. to a foreign country, formula or process, goodwill, trademark,
irrespective of any shipping trade brand or other like property or right;
arrangement that may be agreed upon c) The right or the privilege to use in the
which may influence or determine the Phils. of any industrial, commercial or
transfer of ownership of the goods scientific equipment;
so exported, or foreign currency
denominated sales. d) The right or the privilege to use
motion picture films, tapes, and discs, and
'GOODS' means any movable, tangible e) Radio, television, satellite transmission
objects which is appropriable or and cable television time.
transferrable. (RR 5-87)
The term 'gross selling price' means the

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 the VAT. The excise
tax, if any on such goods or properties shall
form part of the gross selling price.
2) The following sales by VAT-registered

persons shall be subject to 0%:
A) Export sales The term 'export sales'

means:
I) The sale and actual shipment of goods

from the Philippines to a foreign country,
irrespective of any shipping arrangement
that may be agreed upon which may
influence or determine the transfer of
ownership of the goods so exported and
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).
b) Transactions deemed sale. b) Transactions deemed sale. The
The following transactions shall be following transactions shall be deemed sale;
deemed sale; 1) Transfer, use or consumption noting
1) Transfer, use or consumption the course of business of goods or
not in the course of business of goods properties originally intended for sale or for
originality intended for sale or for use use in the course of business.
in the course of business. 2) Distribution or transfer to:
2) Distribution or transfer to: a) shareholders or investors as share
a) shareholders or investors in the profits of the VAT-registered
as share in the profits of the VAT persons; or
registered person; or b) Creditors in payment of debt.
b) creditors in payment of debt 3) Consignment of goods if actual sale
3) Consignment of goods if actual is not made within 60 days following
sale is into made within 60 days following the date such goods were consigned.
the date such goods were consigned. 4) Retirement from or cessation of
4) Retirement from or cessation business, with respect to inventories of
of business, with respect to inventories taxable goods existing as of such
of taxable goods existing as of such retirement or cessation.
retirement or cessation.
c) Changes in cessation of status c) Changes in cessation of status of

of a VAT-registered person. The a VAT-registered person. The tax
tax imposed in paragraph (a) of this imposed in par. (a) of this section shall
Section shall also apply to goods also apply to goods disposed of or existing
disposed of or existing as of a certain as of a certain date if under circumstances
date if under circumstances to be to be prescribed in regulations to be
prescribed in Regulations to be promulgated by the Secretary of Finance,
promulgated by the Sec. of Finance, the status of a person as a VAT-registered
the status of a person as a person changes or is terminated.
VAT-registered person changes
or is terminated. d) Determination of the tax. (1) The
tax shall be computed by multiplying the
d) Determination of the tax. total amount indicated in the invoice by
1) Tax billed as a separate item in 1/11.
the invoice. If the tax is billed as a (2) Sales returns, allowances and sales
separate item in the invoice, the tax discounts. The value of goods or
shall be based on the gross selling price, properties sold and subsequently returned
excluding the tax. 'Gross selling price' or for which allowances were granted by a
means the total amount of money or VAT-registered person may be deducted
its equivalent which the purchaser from the gross sales or receipts for the
pays or is obligated to pay to the quarter in which a refund is made or a
seller in consideration of the sale, credit memorandum or refund is issued.
barter or exchange of the goods, Sales discount granted and indicated in
excluding the VAT. The excise tax, the invoice at the time of sale and the
if any, on such goods shall form grant of which does not depend upon the
part of the GSP. happening of a future event may be
excluded from the gross sales within the
same quarter it was given.
(3) Authority of the Commissioner to

determine the appropriate tax base. The
Commissioner shall, by regulation,
determine the appropriate tax base in cases
where a may influence or determine the
transfer of ownership of the goods so
exported and 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);
ii) Sale of raw materials or packaging
materials to a nonresidents buyer of
delivery to a resident local export-oriented
enterprise to be used in manufacturing,
processing, packing or repacking in the
Phils. of the said buyer's goods and paid
for in acceptable foreign currency and
accounted for in accordance with the rules
and regulations of the BSP;
iii) Sale of raw materials or packaging
materials to export oriented enterprise
whose export sales exceed seventy percent
of total annual production;
iv) Sale of gold to the BSP;
v) Those considered export sales
under EO No. 226, otherwise known as the
Omnibus Investment Code of 1987 and
other special laws.
'Foreign currency denominated sales' B) Foreign currency denominated sale.

means sales to nonresidents of goods The phrase foreign currency denominated
assembled or manufactured in the Phils., sale' means sale to a nonresident of goods,
for delivery to residents in the Phils. and except those mentioned in Sec. 149 and
paid for in convertible foreign currency 150, assembled or manufactured in the
remitted through the banking system Phils. for delivery to a resident in the
in the Phils. Phils., paid for in acceptable foreign
currency and accounted for in accordance
with the rules and regulations of the BSP.
C) Sales to persons or entities whose

exemption under special laws or
international agreements to which the Phils
is a signatory effectively subjects such sales
to zero-rate, transaction is deemed a sale,
barter or exchange of goods or properties
under par. (b) hereof, or where the gross
selling price is unreasonably lower than the
actual market value.
Sec. 101. Value-added tax on importation Sec. 101. SAME

of goods. (a) In general. There shall
be levied, assessed, and collected on every
importation of goods a VAT 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
custody: Provided, that where the customs
duties are determined on the basis of the
quantity or volume of the goods, the VAT
shall be based on the landed cost plus excise
taxes, if any.
(b) Transfer of goods by tax-exempt
persons. In the case of tax-free
importation of goods into the Phils. by
persons, entities or agencies exempt from
tax where such goods are subsequently
sold, transferred or exchanged in the Phils.
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.
Sec. 102. Value-added tax on sale of Sec. 102. Value-added tax on sale of
services. (a) Rate and base of tax. services and use or lease of properties.
There shall be levied, assessed and (a) Rate and base of tax. There
collected a VAT equivalent to 10% shall be levied, assessed and collected
of gross receipts derived by any person a VAT equivalent to 10% of gross
engaged in the sale of services. The receipts derived from the sale or exchange
phrase 'sale of services' means the of services, including the use or lease
performance of all kinds of services for of properties.
others for a fee, remuneration or
consideration, including those performed The phrase "sale or exchange of
or rendered by construction and service services" means the performance of
contractors; stock, real estate, all kinds of services in the Phils. for
commercial, others for a fee, remuneration or
customs and immigration brokers; consideration, including those performed or
lessors of personal property; lessors or rendered by construction; and service
distributors of cinematographic films; contractors; stock, real estate, commercial,
persons engaged in milling, processing, customs and immigration brokers; lessors
manufacturing or repacking goods for of property, whether personal or real;
other; and similar services regardless warehousing services; lessors or
of whether or not the performance distributors of cinematographic films;
thereof calls for the exercise or use persons engaged in milling, processing,
the physical or mental faculties; manufacturing or repacking goods for
Provided, That the following services other, proprietors, operators or keepers
performed in the Phils. by VAT- of hotels, motels, resthouses, pension
registered persons shall be subject to 0%: houses, in as, resorts; proprietors or
operators of restaurants, refreshment
1) Processing, manufacturing or parlors, cafes and other eating places
repacking goods for other persons doing including clubs and caterers; dealers in
business outside the Phils. which goods securities; lending investors; operators
are subsequently exported, where the of taxicabs; utility cars for rent or hire
services are paid for in acceptable driven by the lessees (rent a car
foreign currency, inwardly remitted to companies), tourist buses; and other
the Phils. and accounted for in common carriers by land, air,
accordance with the rules and and sea relative to their transport
regulations of the Central Bank. of goods or cargoes; services of
2) Services other than those franchise grantees of telephone
mentioned in the proceeding sub and telegraph, radio and television
-paragraph, the consideration for broadcasting and all other franchise
which is paid for in acceptable grantees except those under Section
foreign currency which is remitted 117 of this Code; services of banks,
inwardly to the Phils. and accounted non-bank financial intermediaries and
for in accordance with the rules and finance companies; and non-life
regulations of the CB. insurance companies (except their
3) Services rendered to persons or crop insurance) including surety,
entities whose exemption under special fidelity, indemnity and bonding companies;
laws or international agreement to and similar services regardless of whether
which the Phils. is a signatory effectively or not the performance thereof calls for
subjects the supply of such services to the exercise or use of the physical or
zero rate. mental faculties. The phrase 'sale or
exchange of services' shall likewise include:
"Gross receipts" means the total 1) The lease or the use of or the right
amount of money or its equivalent or privilege to use any copyright,
representing the contract price, patent, design or model, plan, secret
compensation or service fee, including formula or process, goodwill, trademark,
the amount charged for materials supplied trade brand or other like property or right;
with the services and deposits or advance 2) The lease or the use of, or the right
payments actually or constructively to use of any industrial, commercial
received during the taxable quarter or scientific equipment;
for the services performed or to be 3) The supply of scientific, technical,
performed for another person, excluding industrial or commercial knowledge
VAT. or information;
(b) Determination of the tax. (1) 4) The supply of any assistance that
Tax billed as a separate item in the is ancillary and subsidiary to and is
invoice. If the tax is billed as a separate furnished as a means of enabling the
item in the invoice, the tax shall be application or enjoyment of any such
based on the gross receipts, including property or right as is mentioned in
the tax. subpar. (2) or any such knowledge
(2) Tax not billed separately or or information as is mentioned in sub-par.
is billed erroneously in the invoice. 3; or
If the tax is not billed separately or 5) The supply of services by a
is billed erroneously in the nonresident person or his employee is
invoice, the tax shall be determined connection with the use of property or
by multiplying the gross receipts rights belonging to, or the installation
(including the amount intended to or operation of any brand, machinery,
cover the tax or the tax billed or other apparatus purchased from such
erroneously) by 1/11. nonresident person;
6) The supply of technical advice,
assistance or services rendered in
connection with technical management or
administration of any scientific, industrial
or commercial undertaking, venture,
project or scheme;
7) The lease of motion picture films,
films, tapes and discs; and
8) The lease or the use of or the right to
use radio, television, satellite transmission
and cable television time.
"Lease of properties shall be subject to

the tax herein imposed irrespective of the
place where the contract of lease or
licensing agreement was executed if the
property is leased or used in the Phils.
The term "gross receipts" means 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 another person,
excluding VAT.
(b) Transactions subject to zero-rate.

The following services performed in the
Phils. by VAT-registered persons shall be
subject to 0%:
1) Processing manufacturing or repacking

goods for other persons doing business
outside the Phils. 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 BSP.
2) Service other than those mentioned in

the preceding sub-paragraph, the
consideration for which is paid for in
acceptable foreign currency and accounted
for in accordance with the rules and
regulations of the BSP/
3) Services rendered to persons or entities
whose exemption under special laws or
international agreements to which the Phils.
is a signatory effectively subjects the
supply of such services to zero rate.
4) Services rendered to vessels engaged
exclusively in international shipping; and
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.
c) Determination of the tax. The
tax shall be computed by multiplying the
total amount indicated in the official receipt
by 1/11.
Sec. 103. Exempt Transactions. Sec. 103 Exempt Transactions.

The following shall be exempt from the The following shall be exempt from
value-added tax: the VAT:
a) Sale of nonfood agricultural, marine a) SAME
and forest products in their original state
by the primary producer or the owner
of the land where the same are produced.
b) Sale or importation in their original b) Sale of cotton and cotton seeds in
state of agricultural and marine food their original state; and copra
products; livestock and poultry of a c) Sale or importation of agricultural
kind generally used as, or yielding or and marine food products in their
producing food for human consumption; original state, exempt importation
and breeding stock and genetic materials of meat, livestock and poultry of a
therefor. kind generally used as, or yielding or
producing foods for human consumption;
Products classified under this par. and breeding stock and genetic materials
and par. (a) shall be considered in their therefor.
original state even if they have
undergone the simple processes of Products classified under this par. and
preparation or preservation for the par. (a) shall be considered in their
market, such as freezing, drying, original state even if they have undergone
salting, smoking or stripping. Polished the simple processes of preparation or
and/or husked rice, corn grits and raw preservation for the market, such as
cane sugar shall be considered in their freezing, drying, salting, smoking or
original state for purposes of this par. stripping. Polished and/or husked rice, corn
c) Sale or importation of fertilizer, grits, locally produced raw cane sugar and
pesticides and herbicides, chemicals ordinary salt shall be considered in their
for the formulation of pesticides; seed, original state;
seedlings and fingerlings; fish, animal d) Sale or importation of fertilizers; seeds,
and poultry feeds; and soya bean and seedlings, fingerlings; fish, prawn, livestock
fish meals; and poultry feeds, including ingredients,
d) Sale or importation of petroleum whether locally produced or imported,
products (exempt lubricating oil, used in the manufacture of finished feeds
processed gas, grease, wax and (except specially feeds for horses,
petroleum) subject to excise tax, fighting cocks, aquarium fish, zoo animals
imposed under Title VI; and other animals generally considered as
e) Sale or importation of raw pets);
materials to be used by the buyer or e) Sale or importation of petroleum
importer himself in the manufacture products (except lubricating oil,
of petroleum products (except processed gas, grease, wax and
lubricating oil and grease) subject petroleum) subject to excise tax imposed
to excise tax. under Title VI;
f) Printing, publication, importation or f) Sale or importation of raw materials
sale of books and any newspaper, to be used by the buyer or importer
magazine, review or bulletin which himself in the manufacture of
appears at regular intervals with petroleum products subject to excise
fixed prices for subscription and tax, except lubricating oil, processed
sale and which is not devoted gas, grease, wax and petrolatum;
principally to the publication of g) Importation of passenger and/or
advertisement; cargo vessel of more than five
g) Importation of passenger thousand tons, whether coastwise or
and/or cargo vessels of more than ocean-going including engine and
ten thousand tons, whether coastwise spare parts of the said vessel to be
or ocean-going, including engine thereof; (SAME)
and spare parts of said vessel, to
be used by the importer himself as
operator thereof;
h) Importation of personal and h) SAME
household effects belonging to
residents of the Phils. returning from
abroad and non-resident citizens
coming to resettle in the Phils.
Provided, that such goods are exempt
from custom duty under the Tariff
and Customs Code of the Phils.
i) Importation of professional i) SAME
instruments and implements,
wearing apparel, domestic animals,
and personal household effects
(except any vehicle, vessel, aircraft,
machinery, other goods for use in
manufacture and merchandise of any
kind in commercial quantity) belonging
to persons coming to settle for the
first time in the Phils. of their own
use and not for sale, barter, or
exchange, accompanying such
persons, or arriving within ninety
days before or after their arrival,
upon the production of evidence
satisfactory to the CIR, that such
persons are actually coming to
settle in the Phils. and that the
change of residence is bona fide;
j) Services rendered by person j) SAME
subject to percentage tax under V;
k) Services by agricultural contract k) SAME
growers and milling for other of palay
into rice, corn into grist and sugar cane
into raw sugar,
l) Medical, dental, hospital and l) Medical, dental, hospital and veterinary
veterinary services; services except those rendered by
professionals;
m) Educational services rendered m) SAME
by private educational institutions,
duly accredited by the DECS, and
those rendered by government
educational institutions;
n) Sale by the artist himself of his n) SAME
works of art, literary works, musical
compositions and similar creations, or
his services performed for the production
of such works;
o) Services performed as actor, actresses, o) Services rendered by individuals
talents, singers and emcees; radio and pursuant to an employer-employee
television broadcaster, choreographers; relationship;
musical, radio, movie, television and
directors;
p) Service performed as professional
athlete;
q) Leasing of real property;
r) Services performed in the exercise
of profession or calling (except customs
brokers) subject to the occupation tax
under the Local Tax Code, and
professional services performed by
registered general professional
partnership;
s) Services rendered by individuals o) SAME
pursuant to an employer-employee
relationship
t) Services rendered by regional or p) SAME
area headquarters established in the q) Transactions which are exempt
Phils. by multinational corp. which under special laws, except those
act as supervisory, communications granted under PD Nos. 66, 529, 927,
and coordinating centers for their 1491 and 1590 and non-electric
affiliates, subsidiaries or branches cooperatives under RA No. 6938 or
in the Asia-Pacific Region and do international agreements to which the
not earn or derive income from the Phils. is a signatory;
Phils;
u) Transactions which are exempt
under special laws or international
agreements to which the Phils. is
a signatory;
v) export sales by persons who r) SAME
are not VAT-registered; and s) Sale or real properties not
w) Sales and/or services performed primarily held for sale to customers or
by persons other than those held for lease in the ordinary course
mentioned the preceding paragraphs of trade or business or real property
whose annual gross sales and/or utilized for law-cost and socialized
receipts do not exceed the amount housing as defined by RA No. 7279
prescribed in regulations to be otherwise known as Urban Dev. and
promulgated by Sec. of Finance Housing Act of 1992, and other related
which shall not be less than laws;
P100,000.00 or higher than t) Sale or lease of goods or properties
P500,000.00. or the performance of services other
than the transactions mentioned in the
preceding pars., the gross annual sales
and/or receipts donor exceed the amount
prescribed in regulations to be promulgated
by the Pres. upon the recommendation by
the Sec. of Finance which shall not be less
than P480,000.00 or more than
P720,000.00 subject to tax under Sec. 112
of this Code.
The foregoing exemptions to the contrary

notwithstanding, any person whose sale of
goods or properties or services which are
otherwise not subject to VAT, but who
issues a VAT invoice or receipt therefore
shall, in addition to his liability to other
applicable percentage tax, if any be liable to
the tax imposed in Sec. 100 or 102 without
the benefit of input tax credit to the
purchaser under Sec. 104 of this Code.
Sec. 104. Tax Credits (a) Sec. 104. Tax Credits (a)
Creditable input tax Any input Creditable input tax. Any
tax on the: input tax evidenced by a VAT
(1) purchase or importation of goods: invoice or official receipt issued in
a) for sale or for conversion into accordance with Sec. 108 hereof on the
or intended to form part of a finished ff. transactions shall be creditable
products for sale or for use in the against the output tax:
course of business; or (1) Purchase or importation of goods:
b) for use a supplies in the course a) For sale; or
of business; b) For conversion into or intended
c) for use as materials supplied to form part of a finished product
in the sale of service; or for sale including packaging materials; or
d) for use in trade or business for c) For use as supplies in the course
which deduction for depreciation is of business; or
allowed under Sec. 29(1) of this d) For use as materials supplied in
Code; and the sale of service; or
(2) Services performed by a e) for use in trade or business
VAT-registered person shall be credited for which deduction for depreciation
against the output tax payable by the or an amortization is allowed under this
VAT registered person; Provided, Code, except automobiles, aircrafts
that in the case of a domestic and yachts.
purchase of goods or services, (2) Purchase of services on which a
the invoice or receipt was issued VAT has been actually paid.
therefor by a VAT-registered person
in a manner prescribed in Section 108. "The input tax on domestic purchase
of goods or properties shall be creditable:
A VAT-registered person who is AA) To the purchaser upon

also engaged in transactions not consumption of sale and on importation of
subject to the VAT shall be allowed goods or properties
tax credit as follows:
(A) Total input tax which can be (BB) To the importer upon payment
directly attributed to transactions of the VAT prior to the release of the
subject to VAT; and goods from the custody of the Bureau
B) A ratable portion of any input of Customs.
tax which cannot be directly attributed
to either activity. However, in the case of purchaser of
"Input tax" means the value-added services, lease or use of properties the
tax paid by a VAT-registered person input tax shall be creditable to the
in the course of his trade or business purchaser, lessee or licensee upon
on importation of goods or services payment of the compensation, rental,
from a VAT-registered person. It royalty or fee.
shall also include the transitional input
tax determined accordance with Sec. A VAT-registered person who is also
105 of this Code and other transitional engaged in transactions not subject to
input taxes as prescribed by regulations. VAT shall be allowed input tax as follows:
a) Total input tax which can be
In case tax exempt products of directly attributed to transactions subject
a pioneer enterprise registered with to VAT; and
the BOI as of Aug. 1, 1986 are sold b) A ratable portion of any input
domestically to VAT-registered person, tax which cannot be directly attributed
the VAT otherwise due on such to either activity.
products shall also be considered as
input tax creditable against the The term "input tax" means the
output tax payable. Value-added tax due from or paid
by a VAT-registered person in the
The term "output tax" means course of his trade or business, on
the VAT due on the sale of taxable importation of goods or local purchase
goods or services by any person of goods or services, including lease
register or required to register under or use of property, from a VAT-
Sec. 107 of this Code. registered person. It shall also include
the transitional input tax determined
(b) Excess output or input tax. in accordance with Sec. 105 of this Code.
If at the end of any taxable quarter the
output tax exceeds the input tax, the The term "output tax" means
excess shall be paid by the VAT the value-added tax due on the sale
-registered person. If the input tax or lease of taxable goods or properties
exceeds the output tax, the excess or services by any person registered
shall be carried over the succeeding or required to register under Sec. 107
quarter or quarters. Any input tax of this Code.
attributable to the purchase of capital
goods or to zero-rated sales by a (b) Excess output or input tax.
VAT-registered person may at this If at the end of the any taxable quarter
option be refunded or creditable against the output tax exceeds the input tax,
other internal revenue taxes, subject to the excess shall be paid by the VAT
the provisions of Sec. 106. -registered person. If the input tax exceeds
the output tax, the excess shall be carried
over to the succeeding quarters. Any input
tax attributable to the purchase of capital
goods or to zero-rated sales by a VAT-
registered person may at his option be
refunded or credited against other internal
revenue taxes, subject to the provisions of
Sec. 106.
(c) Determination of creditable input
tax. The sum of the excess input tax
carried over from the preceding month or
quarter and the input tax creditable to a
VAT-registered person during the taxable
month or quarter shall be reduced by the
amount of claim for refund or tax credit for
VAT and other adjustments, such as
purchase returns or allowances and input
tax attributable to exempt sale.
The claim for tax credit referred to in the

foregoing paragraph shall include not only
those filed with the Bureau of Internal
Revenue but also those filed with the other
government agencies, such as the Board of
Investments (BOI) and the Bureau of
Customs (BOC).
Sec. 105. Transitional input tax SAME

credits. A person who becomes
liable to value-added tax or any person
who elects to be a VAT-registered
person shall subject to the filing of
inventory as prescribed by regulations,
be allowed input tax on his beginning
inventory of goods, materials and
supplies equivalent to 8% of the value
of such inventory or the actual value-
added tax paid on such goods,
materials and supplies, whichever
is higher, which shall be creditable
against the output tax.
Sec. 106. Refund or tax credits of input Sec. 106. Refunds or tax credits
tax. of creditable input tax. (a) Any
(a) Export sales An exporter VAT-registered person, whose sales
who is a VAT-registered person within two are zero-rated or effectively zero-rated,
years from the date of exportation, apply may within two(2) years after the close
for the issuance of a tax credit certificate of the taxable quarter when the sales
or refund of the input tax attributable to were made, apply for the issuance of a
the goods exported, to the extent that tax credit certificate or refund of creditable
such input tax has not been applied to input tax due or paid attributable to such
output tax and upon presentation of sales, except transitional input tax
proof that the foreign exchange to the extent that such input tax has
proceeds has been accounted for not been applied against output tax.
in accordance with the regulations Provided, however, That in the case of
of the Central Bank of the zero-rated sales under Sec.
Philippines. 100(a)(2)(A)(i)(ii)and(b) and Sec.
102(b)(1) and (2), the acceptable
b) Zero-rated or effectivity foreign currency exchange proceeds
zero-rated sales. Any person, thereof had been duly accounted for in
except those covered by par.(a) accordance with the regulations of the
above, whose sales are zero-rated Bangko Sentral ng Pilipinas (BSP):
or are effectivity zero-rated may, Provided, further, That where the taxpayer
within two years after the close of is engaged in zero-rated or effectively
the quarter when such sales were zero-rated sale and also in taxable or
made apply for the issuance of a exempt sale of goods or properties or
tax credit certificate or refund of services, and the amount of creditable
the input taxes-attributable to such input tax due or paid cannot be directly
sales to the extent that such input or entirely attributed to any one of the
tax has not been applied against transactions, it shall be allocated
output tax. proportionately on the basis of the
volume of sales.
c) Capital goods. A
VAT-registered person may apply (b) Capital goods. A VAT-
for the issuance of a tax credit registered person may apply for the
certificate or refund of input taxes issuance of a tax credit certificate or
paid on capital goods importer or refund of input taxes paid on
locally purchased, to the extent capital goods imported or locally
that such input taxes have not purchased, to the extent that such input
been applied against output taxes. taxes have not been applied
The application for refund may against output taxes. The application may
be made only after the expiration be made only within two (2) years
of two (2) succeeding quarters after the close of the taxable quarter
following the quarter in which when the importation or purchase was
the importation or local purchase made.
was made: Provided, that a
VAT-registered person who
is just commencing business
may apply for refund of input
taxes under this paragraph not
earlier than 130 days from the
date of registration or actual start
of business operations, whichever
comes later. Provided, however,
That the application is filed not
later than 2 years from the dates
herein prescribed.
d) Cancellation of VAT (c) Cancellation of VAT-registration

registration A person whose A person whose registration has been
registration has been cancelled cancelled due to retirement from or
due to retirement or cessation of cessation of business, or due to changes
business, or due to changes in or in or cessation of status under Sec. 100(c)
cessation of status under Sec. of this Code may, within two (2) years
100(c) of this Code may, within 2 from the date of cancellation, apply for
years from the date of cancellation, the issuance of a tax credit certificate
apply for the issuance of a tax credit for any unused tax which may be used
certificates for any unused input tax in payment of his other internal revenue
which he may use in payment of his taxes.
other internal revenue taxes.
e) Period within which refund of (d) Period within which refund or tax
input taxes may be made by the credit of input taxes shall be made.
Commissioner The Commissioner In proper cases, the Commissioner shall
shall refund input taxes within 60 grant a refund or issue the tax credit
days from the date the application for creditable input taxes within sixty
for refund was filed with him or his (60) days from the date of submission
duly authorized representative. No of complete documents in support of
refund of input taxes shall be the application filed in accordance with
allowed unless the VAT-registered sub-paragraphs (a) and (b) hereof. In
person files an application. case of full or partial denial of the claim
for.
(c) Cancellation of Registration. (e) Cancellation of Registration.
The registration of any person The registration of any person who ceases
who ceases to be liable to the VAT to be liable to the VAT shall be cancelled
shall be cancelled by the Commissioner by the Commissioner upon filing of an
upon filing of an application for application for cancellation of registration.
cancellation of registration. Any person Any person who opted to be registered
who opted to be registered under under par.(d) of this section may, under
par (d) of this section may, under regulation of the Sec. of Finance, apply for
regulations of the Sec. of Finance, cancellation of such registration.
apply for cancellation of such
registration.
Sec. 108. Invoicing and accounting Sec. 108. Invoicing and accounting
requirements for VAT-registered requirements for VAT-registered persons
persons. (a) Invoicing requirements. (a) Invoicing requirements. A VAT-
A VAT-registered person shall, registered person shall, for every sale,
for every sale, issue an invoice or issue an invoice or receipt. In addition to
receipt. In addition to the information the information required under Sec. 238,
required under Sec. 238, the ff. the ff. information shall be indicated
information shall be indicated in the in the invoice or receipt:
invoice or receipt: (1) A statement that the seller is a
VAT-registered person, followed by his
(1) The VAT registration No. TIN: and
(2) If the seller bills the tax as a (2) The total amount which the purchaser
separate item in the invoice. pays or is obligated to pay to the
(A) the amount of gross selling price seller which the indication that such
or gross receipts on which the amount includes the VAT.
value-added tax is based;
(B) the amount of VAT determined by
multiplying the amount of gross selling
price or gross receipts by the rate of
tax; and
(C) the sum of (i) the gross selling
price or gross receipts and (ii) the
VAT which the purchaser pays or is
obligated to pay to the vendor.
(3) If the seller elects not to bill
the tax as a separate item in the
invoice or receipt the total amount
charged against the buyer.
(b) Accounting requirement. (b) Accounting requirements.

Notwithstanding the provisions of Notwithstanding the provision of Sec.
Sec. 233, all persons subject the 223, all persons subject to the VAT
VAT under Sec. 100 and 102 shall under Secs. 100 and 102 shall, in addition
in addition to the regular accounting to the regular accounting records required,
records required, maintain a subsidiary maintain a subsidiary sales journal
sales journal and subsidiary purchase and subsidiary purchase journal on
journal on which the daily sales and which the daily sales and purchases are
purchases are recorded. The recorded. The subsidiary journals shall
subsidiary journals shall contain such contain such information as may
information as may be required by be required by the Sec. of Finance.
the Sec. of Finance.
Sec. 109. Notification requirements SAME (NOT AMENDED)

(a) change of place of business It
shall be the duty of every VAT-registered
person to file a notice of change of his
principal place of business or any of his
branches or offices. Such notification
shall be file within 15 days from the
date of such change with the Rev.
District Officer who have jurisdiction
of his former and new place of
business.
(b) Other changes. Any person SAME
registered in accordance with Sec.
107 shall notify the Rev. District
Officer of the change or termination
of his status as a VAT-registered
person.
Sec. 110. Return and payment of SAME

VAT. (a) Where to file the return
and pay the tax. Every person subject
to VAT shall file a quarterly return of his
gross sales or receipts and pay the tax
due thereon to a bank duly accredited
by the Commissioner located in the
rev. district where such person is
registered or required to be registered.
However, in cases where there are no
duly accredited agent banks within the
city or municipality, the return shall be
filed and any amount due shall be paid
to any duly accredited bank within the
district, or to the Rev. District Officer,
Collection Agent or duly authorized
Treasurer of the city or municipality
where such taxpayer has his principal
place of business. Only one consolidated
return shall be filed by the taxpayer for
all the branches and lines or business
subject to VAT. If no tax is payable
because the amount of input tax and any
amount authorized to be offset against
the output tax due on the return, the
taxpayer shall file the return with
the RDO, Collection Agent, or
authorized muni, treasurer where the
taxpayer's principal place of business
is located.
(b) Time for filing of return and SAME

payment of tax. The return shall be
filed and the tax paid within 20 days
following the end of each quarter
specifically prescribed for a VAT-
registered person under regulations
to be promulgated by the Sec. of
Finance: Provided, however, That
any person whose registration is
cancelled in accordance with par (c)
of Sec. 107 shall file a return within
20 days from the cancellation of
such registration.
(c) Initial returns The (c) Withholding of Creditable VAT

Commissioner may prescribed initial The govt. or any of its political
taxable period for any VAT-registered subdivisions, instrumentalities or
person for his first return, which in no agencies, including GOCCs shall,
case shall exceed 5 months. before making payment on account
of its purchase of goods from sellers and
services rendered by contractors which are
subject to the VAT imposed in Secs. 100
and 102 of this Code, deduct and withhold
the VAT due at the rate of 3% of the gross
payment for the purchase of goods, and
6% on gross receipts for services rendered
by contractors on every sale or installment
payment which shall be creditable against
the VAT liability of the seller or contractor;
Provided, however, That the payment for
lease or use of properties or property rights
non-resident owners shall be subject to ten
percent (10%) withholding tax at the time
of payment. For this purpose, the payor or
person in control of the payment shall be
considered as the withholding agent.
Sec. 111. Power of the Commissioner SAME

to suspend the business operations
of taxpayer The Commissioner or
his duly authorized representative is
hereby empowered to suspend the
business operations and temporary
close the bus. establishment of any
person for any of the ff. violations:
(a) In the case of a VAT-registered

person
(1) failure to issue receipts or invoices
(2) Failure to file a VAT return as required
under Sec. 110.
(3) Understatement of taxable sales or
receipts by 30% or more of his correct
taxable sales or receipts for the taxable
quarter
Endnotes
1 (Popup - Popup)
Annex A
Annex B
Annex B1
Annex B2
Annex C
Annex D
2 (Popup - Popup)
RA 8424
3 (Popup - Popup)
Annex A
4 (Popup - Popup)
RA 8479
5 (Popup - Popup)
RA 8424
6 (Popup - Popup)
RA 8424
7 (Popup - Popup)
RA 8424
8 (Popup - Popup)
RA 8479
9 (Popup - Popup)
RA 6734
10 (Popup - Popup)
RA 8424
11 (Popup - Popup)
RA 8424
12 (Popup - Popup)
PD 1158
13 (Popup - Popup)
* Note from the Publisher: Copied verbatim from the official copy.

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(1)

December 15, 2005

REVENUE MEMORANDUM ORDER NO. 07-06

SUBJECT : Prescribing Guidelines and Procedures in the Processing

TO : All Internal Revenue Officers and Others Concerned

This Memorandum Order is being issued to provide guidelines and

1. Facilitate the processing of applications for VAT zero-rating

2. Prescribe standard report forms to be used by all concerned offices in

II. GUIDELINES AND POLICIES

1. All Applications for VAT Zero-Rate (Annex "A") except those of

The Large Taxpayers Audit and Investigation Divisions I and II

In no case shall Revenue District Offices (RDOs) be allowed to

2. Taxpayers shall file their Applications for VAT Zero-Rate directly

3. The AITEID shall only accept Applications for VAT Zero-Rate as

The receiving office shall check on the completeness of the

4. The Application for VAT Zero-Rate shall be accomplished and filed

5. The Application for VAT Zero-Rate shall be processed and

6. For applications requiring favorable endorsement from other

7. Approval for VAT zero-rating shall be required only for transactions

8. The approval of Applications for VAT Zero-Rate shall be given

9. The approved Application for VAT Zero-Rate shall be valid until

12. The LTAID I and II/LTDO shall submit to AITEID quarterly/annual

1. Prior to receiving the Applications for VAT Zero-Rate

a. Review the details appearing in the application and check

b. Ascertain the completeness of the pertinent documents

2. Receive the Applications for VAT Zero-Rate with complete

Original Taxpayer (after approval/disapproval)

3. Indicate the Application Number (AN) on the appropriate space

c. Name and TIN of Applicant;

d. Name and TIN of Customer;

e. Transaction applied for; and

2. Review and evaluate the supporting documents attached to the

3. Ascertain the veracity of all the information contained in the

a. Verify using the ITS facilities whether the applicant is a

b. Verify the correctness of the name, address and TIN of the

4. Verify if the required favorable endorsement from concerned

a. Verify if the purchaser is included in the current annual

b. In case the customer is not yet included in the annual

c. Check the legitimacy of the copies of endorsement submitted

d. Ascertain the legal and/or factual basis invoked by the

5. Fill up all the appropriate spaces in the application form indicating

Item No. 10 Mark the appropriate box provided to indicate which

Item No. 11 State the result of evaluation and recommend for

Item No. 12 Indicate the specific instructions/remarks for strict

The following information shall be indicated on this

*Effectivity "Unless sooner revoked, VAT-Zero

*Invoicing "Applicant/Seller must always issue

*Exclusivity "For exclusive delivery of the specific

6. Affix initial on the duplicate and triplicate copies of the

7. Forward the accomplished application form together with the

1. Receive the duly accomplished Applications for VAT Zero-Rate

2. Review the evaluation made by the Revenue Officer on the

3. Affix initial in the application form to manifest approval.

4. Forward the entire processed application and all supporting

5. Review the quarterly/annual List of Approved Applications for VAT

6. Receive from LTAID I and II/LTDO the quarterly/annual List of

7. Prepare a consolidated List of Approved Applications for VAT

1. Receive the duly validated Applications for VAT Zero-Rate together

2. Review the basis used in processing the application to ascertain if the

3. Approve/disapprove the Applications for VAT Zero-Rate.

4. Forward the approved/disapproved applications together with all the

5. Receive from the Section Chief the quarterly/annual list or

6. Review the above lists before transmittal to the (AITEID)