TAXATION II Francisco B.

Gonzales V
2nd Semester 2018-2019 III-E

THE VALUE ADDED TAX (SEC 105-118 NIRC)

AS AMENDED BY RA 10963 TRAIN LAW
PLEASE NOTE THAT THIS COVERS ONLY SEC. 105 TO 108 OF THE NIRC. PLS CONSIDER
THE DATES OF THE RULINGS AS A FACTOR IN YOUR STUDIES

Republic Act 9337 amending the provisions of Section 106, 107, 108, 109, 110, 111, 112, 113,
114, 116 of the NIRC of 1997.

Republic Act 10378 amending the provisions of Section 28, 109, 118, 236 of the NIRC 1997.

Republic Act 10968 amending Sec. 106 to 109 and other pertinent provisions of the VAT
Law.

Tolentino v. CIR G.R. No. 115455. August 25, 1994 Questioned the constitutionality of EVAT.
SC said not unconstitutional. The Consti merely directs congress to create a progressive system of taxation.
It is not an enforceable right. In the MR SC said that indirect taxes are not prohibited but direct taxes must
be preferred

Destination Principle BIR Ruling 032-98 (shimizu) Shimizu is VAT registered. It was
contracted by TPC (a PEZA-registered business/exporter) to build its factory in at the PEZA Sta. Rosa
Laguna. Shimizu applied for zero pecent VAT on its sale of service to TPC. CIR said zero-rated because
TPC’s goods are consumed outside the PH. Tax Code provides that services rendered in the Philippines is
subject to 0% VAT when: “rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory

CIR v. Burmeister Wain GR 153205 Jan 22 2007 NAPOCOR contracted

with foreign entity and latter subcontracted with Burmeister (15 year contract). Burmeister wanted to know
the tax implications of the transaction (it was paid foreign currency in the PH) with the foreign corp. Not
liable for tax because it relied on the erroneous BIR Rulings BUT it is not zero-rated. The recipient of the
services (foreign corp) is considered doing business within the PH because the contract with NAPOCOR is
15 years long.
CIR v. American Express GR 152609 29 June 2005 Amex-Ph is a
servicing unit which collects receivables from card members and payment to service establishments. It
asked for a refund of excess input taxes arguing that its VAT registered and its export sales are subject to
VAT at 0% (zero-rated). SC said YES, exempted. Although the services are consumed in the PH, there is
an exemption which Amex-Ph falls under: paid for in acceptable foreign currency and accounted for in
accordance with the R&R of the BSP.
Refutation of destination principle
CIR v. Place Dome GR 164365 June 8 2007 Mine tailings from a mining
pit escaped and caused cessation of mining and potential environmental harm. To contain damage, the
owner through its subsidiary (non-resident foreign) contracted the services of local corp. the payments were
in US dollars. SC said that the services were performed and consumed in the PH. But it falls under the
exemption that it was paid for in acceptable foreign currency and accounted for in accordance with the
R&R of the BSP.

Revenue Regulation 16-2005 Consolidated Value-Added Tax Regulation of 2005 as amended by

Revenue Regulation 4-2007 and by Revenue Regulation 13-2018

Sec. 105: Persons liable

Distinguish a direct tax from an indirect tax.

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 BIR Ruling 88-243 (shifting of HDMF) HDMF is a gov’t financial institution exempt from
tax. Its suppliers have been charging HDMF 10% VAT. Valid because it is indirect and becomes an
additional cost which the customer has to pay in order to obtain the goods.
BIR Ruling 91-151 purchase of prime commodities from CDA Cooperatives are exempt
from certain taxes if registered with the CDA. It wants to be exempted from VAT. CIR: Not exempt, VAT
is indirect tax; not tax on the buyer but an additional cost on the goods which buyer has to pay to obtain the
goods.
CIR v. Gotamco Feb 27 1987 WHO decided to construct a building to house its officer and
other UN officials in Manila. It was made liable to pay 3% contractor’s tax. SC said this was indirect tax
and WHO should not be liable under the Host Agreement. The 3% is imposed upon the contractor and
shifted to WHO, therefore, it was indirect.
Contex c. CIR GR 151135 July 2004 Contex is a domestic corporation in Subic Bay
Freeport Zone and thus a non-VAT taxpayer (VAT Exempt). Its suppliers shifted the VAT to Contex and
thus the latter claims refunds. The SC said no refund because tax liability is different from tax burden. Only
the burden was shifted. Also, it is the zero-rated seller which can get credit/refund, not the VAT-exempt
buyer.
Definition of the term “Business”: Sec 22 (S);
CIR v. Magsaysay Lines July 28, 2006 GR 146984 NDC decided to sell its shares in NMC
and vessels. Under the stipulated terms, the winning bidder will pay VAT. The SC said not liable to VAT
because the transaction is considered an isolated transaction and NDC is not engaged in the selling of
personal properties; no regularity of activity
Revenue Audit Memorandum Order 1-86 (branch operations of foreign corp. in the phil.;
Imperial v. Collector, 97 Phil. 992 (isolated transactions) Imperial leasing property while he is
abroad because of his job abroad. He was assessed deficiency real estate dealer’s tax. SC: not liable because
he was not engaged in real estate. The annual rental received less than the annual income he received from
the offices which he had been holding. BIR Ruling 113-98 (sale by liberty broadcasting of microwave
backbone); not liable for VAT because isolated, not in the ordinary trade or business
VAT Ruling 012-02 (sale not subject to VAT when not in business); MGM sells goods but
it also constructed a building and improvements. It wanted to sell this building and improvements to pay
its debts. Not subject to VAT because property neither primary held for sale to customers nor for lease in
the ordinary course of business
Manila Polo Club v. Meer 106 Phil 885 (when there is no profit involved); Manila Polo
club opened a restaurant and sought exemption from fixed and percentage taxes. SC: merely incidental to
its main purpose as a club (promotion of the game of polo, other athletic sport and outdoor recreations and
social intercourse to its members). Not a keeper of restaurant and bar.

See section 109 as implemented by 16-2005 however please see RR 4-2007 Section 14
amending Sec. 4.109-1(B)(1) subsection (p)

BIR Ruling/s: 276-07 (when real properties were not considered goods subject to vat) UPPC
acquired several properties and equipment for its paper manufacturing business. It wanted to sell one of its
plants. The CIR held that not liable for VAT because the property is not primarily held for sale in the
ordinary course of trade/business. Primarily means principal, chief, leading or first in order of time or
development. To be such, property must be held with the chief intention of being sold or leased.
BIR Ruling 024-05 (real property and personal property are not subject to vat under a 40 (c)(2)
exchange;
BIR Ruling 218-06 (incidental sale)
ITAD Ruling 29-02 (proctor and gamble international phil);
ITAD Ruling 93-05 (onshore offshore production);
CIR v. CA Commonwealth G.R. No. 125355 March 30, 2000 doing business
Commissioner of Internal Revenue v. Sony Philippines, Inc. (November 17, 2010)
RMC 15-2011 incidental sales of goods not normally held for sale

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 Sec. 106: VAT on Sale of Goods or Properties
Rate and Base of Tax
Goods or properties
a) Real Properties: See Rev. Regulation 16-2005 as amended by 4-2007; 174-98 (sale of
fish) sells fish for export and was made to pay VAT for the fuel, parts and supplies
they’re buying. CIR: not exempt from indirect tax, only direct tax because VAT can
be shifted; VAT Ruling 037-01 (lease of dormitory space) EOI is in the business of
leasing out stalls and office spaces and operates a residential dormitory. CIR: exempt
from VAT because the monthly rental from each individual does not exceed 8k; RR 4-
2007
b) Patents, copyrights, design model, etc. 129-98 (royalty payments us-phil treaty warner
studios subject to vat) Time Warner allowed local studio to use its copyrighted
characters in consideration of a percentage of its gross sales. CIR: Subject to VAT;
royalties paid to non-resident foreign corps shall be based on the contract price. Local
studio shall withhold the VAT and pay it to the BIR; 104-98 Dae Ryung Ind (PH) tax
exempt from all direct and indirect taxes because of the preferential 5% in lieu of all
local taxes (royalty payments not subject to vat because of peza)
c) Use in the Philippines industrial, commercial, scientific equipment
d) Motion pictures
e) Radio, television satellite and cable television time; BIR Ruling 14-98 (govt airtime is
subject to VAT) Brodkaster gets broadcast orders for airtime from PIA, it is asking if
PIA is subject to tax and WoN the contracts may be liable for tax. CIR: Yes, GOCCs
are also liable for tax. Buying and selling of airtime constitute rendition of services.
Also, the tv and radio owners are primarily liable to pay VAT but they can pass it on
to PIA; 38-98 (PLDT IT trunkline services) PLDT is asking WoN trunkline and
internet services are subject to VAT. CIR: Yes, because they’re in the course of trade
or business, the rendition of the same starts in the PH. For international messages,
dispatch, etc. they are subject to 10% percentage tax, 88-59 (advertising agencies gross
billings subject to vat) WoN tax should be on 15% agency commission or on gross
receipts. CIR: VAT is based on gross receipts, which is the 15% of the gross billings
of an advertising agency; 88-85 (advertising agencies) advertising agencies are now
subject to 10% VAT on their gross receipts
f) OTHERS; BIR Ruling 27-98 (purchase of electric cooperative is subject to vat
although their service is vat exempt) Electric company wanted to know if its local
purchases were exempt from VAT as well. CIR: No, only its sales and importations.
Local purchases are subject to VAT because it’s an indirect tax which can be shifted
to the electric company CIR v. Magsaysay Lines July 28, 2006 GR 146984 NDC
decided to sell its shares in NMC and vessels. Under the stipulated terms, the winning
bidder will pay VAT. The SC said not liable to VAT because the transaction is
considered an isolated transaction and NDC is not engaged in the selling of personal
properties; no regularity of activity

Gross Selling Price: How is it computed

Zero Rated Sales: automatic RR 16-2005 Sec. 4.106-5 as amended by RR 4-2007 and RR 13-2018
(Automatic Zero Rating)
RR 16-2005 RR 4-2007 RR 13-2018

A zero-rated sale of goods or Section 5. ZERO- SECTION 2. AMENDMENTS.

properties (by a VAT- RATED SALES. - Sections 4.106-5, 4.108-3, 4.108-5,
registered person) is a taxable Sec. 4.106-5 of RR 4.109-1, 4.109-2, 4.110-3, 4.112-1,

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transaction for VAT purposes,
but shall not result in any
output tax. However, the input
tax on purchases of goods,
properties or services, related
to such zero-rated sale, shall be
available as tax credit or refund
in accordance with these
Regulations.
The following sales by VAT-
registered persons shall be
subject to zero percent (0%)
rate:
(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, paid for in acceptable
foreign currency, and
accounted for in accordance
with the rules and regulations
of the BSP;
(3) The sale of raw materials
or packaging materials to an
export-oriented enterprise
whose export sales exceed
seventy percent (70%) of total
annual production;
No. 16-2005 is 4.114-1, 4.114-2, and 4.116 of RR
hereby amended to No. 16-2005, as amended, are hereby
read as follows: further amended to read as follows:
“SEC. 4.106-5. Zero- SEC. 4.106-5. Zero Rated Sales of
Rated Sales of Goods Goods or Properties. - xxx
or Properties. - Xxx The following sales by VAT-
xxx xxx. registered persons shall be subject to
zero
The following sales percent (0%) rate:
by VAT-registered
persons shall be (a) Export sales. - "Export Sales"
subject to zero shall mean:
percent (0%) rate: (1) The sale and actual shipment of
goods from the Philippines to a
(a) Export Sales. - foreign country, irrespective of any
Xxx xxx. shipping arrangement that may be
agreed upon which may influence or
(5) Transactions determine the transfer of ownership of
considered export the goods so exported, paid for in
sales under Executive acceptable foreign currency or its
Order No. 226, equivalent in goods or services, and
otherwise known as accounted for in accordance with the
the Omnibus rules and regulations of the Bangko
Investments Code of Sentral ng Pilipinas (BSP);
1987, and other (2) The sale of raw materials or
special laws. packaging materials to a non-resident
buyer for delivery to a resident local
“Considered export export-oriented enterprise to be used
sales under Executive in manufacturing, processing, packing
Order No. 226” shall or repacking in the Philippines of the
mean the Philippine said buyer's goods, paid for in
port F.O.B. value acceptable foreign currency, and
determined from accounted for in accordance with the
invoices, bills of rules and regulations of the BSP;
lading, inward letters (3) The sale of raw materials or
of credit, landing packaging materials to an export-
certificates, and other oriented enterprise whose export sales
commercial exceed seventy percent (70%) of total
documents, of export annual production.
products exported Any enterprise whose export sales
directly by a exceed 70% of the total annual
registered export production of the preceding taxable
producer, or the net year shall be considered an export-
selling price of export oriented enterprise.
products sold by a (4) Transactions considered export
registered export sales under Executive Order No. 226,
producer to another otherwise known as the Omnibus
export producer, or to Investments Code of 1987, and other
an export trader that special laws.
subsequently exports "Considered export sales under
the same; Provided, Executive Order No. 226" shall mean
That sales of export the Philippine port F.O.B. value
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 Any enterprise whose products to another determined from invoices, bills of
export sales exceed 70% of the producer or to an lading, inward letters of credit,
total annual production of the export trader shall landing certificates, and other
preceding taxable year shall be only be deemed commercial documents, of export
considered an export-oriented export sales when products exported directly by a
enterprise. actually exported by registered export producer, or the net
(4) Sale of gold to the BSP; the latter, as selling price of export products sold
and evidenced by landing by a registered export producer to
(5) Transactions considered certificates or similar another export producer, or to an
export sales under Executive commercial export trader that subsequently
Order No. 226, otherwise documents; Provided, exports the same: Provided, That
known as the Omnibus further, That pursuant sales of export products to another
Investments Code of 1987, and to EO 226 and other producer or to an export trader shall
other special laws. special laws, even only be deemed export sales when
without actual actually exported by the latter, as
“Considered export sales exportation, the evidenced by landing certificates or
under Executive Order No. following shall be similar commercial documents:
226” shall mean the Philippine considered Provided, further, That without actual
port F.O.B. value determined constructively exportation the following shall be
from invoices, bills of lading, exported: (1) sales to considered constructively exported
inward letters of credit, landing bonded for purposes of these provisions: (1)
certificates, and other manufacturing sales to bonded manufacturing
commercial documents, of warehouses of warehouses of export-oriented
export products exported export-oriented manufacturers; (2) sales to export
directly by a registered export manufacturers; (2) processing zones; (3) sales to
producer, or the net selling sales to export registered export traders operating
price of export products sold by processing zones bonded trading warehouses supplying
a registered export producer to pursuant to Republic raw materials in the manufacture of
another export producer, or to Act (RA) Nos. 7916, export products under guidelines to be
an export trader that as amended, 7903, set by the Board in consultation with
subsequently exports the same; 7922 and other the Bureau of Internal Revenue (BIR)
Provided, That sales of export similar export and the Bureau of Customs (BOC);
products to another producer or processing zones; (3) (4) sales to diplomatic missions and
to an export trader shall only be sale to enterprises other agencies and/or
deemed export sales when duly registered and instrumentalities granted tax
actually exported by the latter, accredited with the immunities, of locally manufactured,
as evidenced by landing Subic Bay assembled or repacked products
certificates or similar Metropolitan whether paid for in foreign currency
commercial documents; Authority pursuant to or not.
Provided, further, That without RA 7227; (4) sales to For purposes of zero-rating, the
actual exportation the registered export export sales of registered export
following shall be considered traders operating traders shall include commission
constructively exported for bonded trading income. The exportation of goods on
purposes of these provisions: warehouses consignment shall not be deemed
(1) sales to bonded supplying raw export sales until the export products
manufacturing warehouses of materials in the consigned are in fact sold by the
export-oriented manufacturers; manufacture of consignee; and Provided, finally, that
(2) sales to export processing export products under sales of goods, properties or services
zones; (3) sales to registered guidelines to be set made by a VAT-registered supplier to
export traders operating by the Board in a BOI-registered
bonded trading warehouses consultation with the manufacturer/producer whose
supplying raw materials in the Bureau of Internal products are 100% exported are
manufacture of export products Revenue (BIR) and considered export sales. A

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under guidelines to be set by
the Board in consultation with
the Bureau of Internal Revenue
(BIR) and the Bureau of
Customs (BOC); (4) sales to
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.
For purposes of zero-rating,
the export sales of registered
export traders shall include
commission income. The
exportation of goods on
consignment shall not be
deemed export sales until the
export products consigned are
in fact sold by the consignee;
and Provided, finally, that sales
of goods, properties or services
made by a VAT-registered
supplier to a BOI- registered
manufacturer/producer whose
products are 100% exported are
considered export sales. A
certification to this effect must
be issued by the Board of
Investment (BOI) which shall
be good for one year unless
subsequently re-issued by the
BOI.
(6) The sale of goods,
supplies, equipment and fuel to
persons engaged in
international shipping or
international air transport
operations; Provided, That the
same is limited to goods,
supplies, equipment and fuel
pertaining to or attributable to
the transport of goods and
passengers from a port in the
Philippines directly to a foreign
port without docking or
stopping at any other port in the
Philippines; Provided, further,
that if any portion of such fuel,
goods or supplies is used for
purposes other than that
the Bureau of certification to this effect must be
Customs (BOC); (5) issued by the Board of Investment
sales to diplomatic (BOI) which shall be good for one
missions and other year unless subsequently re- issued by
agencies and/or the BOI.
instrumentalities
granted tax (5) The sale of goods, supplies,
immunities, of locally equipment and fuel to persons
manufactured, engaged in international shipping or
assembled or international air transport operations:
repacked products Provided, That the goods, supplies,
whether paid for in equipment, and fuel shall be used
foreign currency or exclusively for international
not. shipping or air transport
Xxx xxx xxx. operations.
(6) The sale of goods, The sale of goods, supplies,
supplies, equipment equipment and fuel to persons
and fuel to persons engaged in international shipping or
engaged in international air transport operations
international is limited to goods, supplies,
shipping or equipment and fuel that shall be used
international air in the transport of goods and
transport operations; passengers from a port in the
Provided, that the Philippines directly to a foreign port,
same is limited to or vice versa, without docking or
goods, supplies, stopping at any other port in the
equipment and fuel Philippines unless the docking or
pertaining to or stopping at any other Philippine port
attributable to the is for the purpose of unloading
transport of goods passengers and/or cargoes that
and passengers from originated from abroad, or to load
a port in the passengers and/or cargoes bound for
Philippines directly abroad: Provided, further, that if any
to a foreign port, or portion of such fuel, goods, supplies
vice versa, without or equipment is used for purposes
docking or stopping other than that mentioned in this
at any other port in paragraph, such portion of fuel,
the Philippines unless goods, supplies, and equipment shall
the docking or be subject to 12% VAT.
stopping at any other
Philippine port is for Provided, That items (2), (3), and (4)
the purpose of abovementioned shall be subject to
unloading passengers the twelve percent (12%) VAT and
and/or cargoes that no longer be subject to zero percent
originated from (0%) VAT rate upon satisfaction of
abroad, or to load the following conditions:
passengers and/or 1. The successful
cargoes bound for establishment and
abroad; Provided, implementation of an
further, that if any enhanced VAT refund
portion of such fuel, system that grants and pays
goods or supplies is refunds of creditable input

6
mentioned in this paragraph,
such portion of fuel, goods and
supplies shall be subject to
10% VAT.
(b) “Foreign Currency
Denominated Sale”. – “Foreign
Currency Denominated Sale”
means the sale to a non-
resident of goods, except those
mentioned in Secs. 149 and 150
of the Tax 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 BSP.
Sales of locally International
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 BSP shall
also be considered export sales. Research
(c) “Sales to Persons or Entities effectively subject to
Deemed Tax-exempt under VAT at zero-rate.”
Special Law or International
Agreement”. - Sales of goods
or property to persons or
entities who are tax- exempt
under special laws, e.g. sales to
enterprises duly registered and
accredited with the Subic Bay
Metropolitan Authority
(SBMA) pursuant to R.A. No.
7227, sales to enterprises duly
registered and accredited with
the Philippine Economic Zone
Authority (PEZA) or
international agreements to
which the Philippines is
signatory, such as, Asian
Development Bank (ADB),
used for purposes tax within ninety (90) days
other than that from the filing of the VAT
mentioned in this refund application with the
paragraph, such Bureau: Provided that, to
portion of fuel goods determine the effectivity of
and supplies shall be Item no. 1, all applications
subject to twelve filed from January 1, 2018
percent (12%) output shall be processed and
VAT starting decided within ninety (90)
February 1, 2006. days from the filing of the
VAT refund application.
(b) Foreign Currency The 90-day period to process and
Denominated Sale. - decide, pending the establishment
Xxx xxx xxx xxx. of the enhanced VAT Refund
System shall only be up to the date
(c) Sales to Persons of approval of the Recommendation
or Entities Deemed Report on such application for VAT
Tax-exempt Under refund by the Commissioner or his
Special Law or duly authorized representative.
However, all claims for refund/tax
Agreement. - Sale of credit certificate filed prior to
goods or property to January 1, 2018 shall still be
persons or entities governed by the one hundred
who are tax-exempt twenty (120)-day processing period.
under special laws or The Secretary of Finance shall
international provide transitory rules for the
agreements to which grant of refund under the enhanced
the Philippines is a VAT Refund System after the
signatory, such as, determination of the fulfilment of
Asian Development the condition by the Commissioner
Bank (ADB), of Internal Revenue as provided in
International Rice item 1 paragraph 1 hereof; and
Institute 2. All pending VAT refund
(IRRI), etc., shall be claims as of December 31,
2017 shall be fully paid in
cash by December 31, 2019.
Provided, That Department of
Finance shall establish a VAT
refund center in the BIR and in the
Bureau of Customs (BOC) that will
handle the processing and granting
of cash refunds of creditable input
tax.
(b) Sales to persons or entities whose
exemption under special laws or
international agreements to which the
Philippines is a signatory effectively
subjects such sales to zero rate.
xxx xxx xxx
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International Rice Research
Institute (IRRI), etc., shall be
effectively subject to VAT at
zero-rate.

a) Export sales: 88-182 if the mineral products are exported abroad, the gross sales
derived therefrom are exempt from the value-added tax. If the firm is VAT- registered,
the export sales are automatically subject to zero rate; 87-170 ice water is used for food
consumption hence subject to sales tax and RMC 7-94 (can’t find online) (ice and
bottled water); 88-182 (export of minerals) if the mineral products are exported abroad,
the gross sales derived therefrom are exempt from the value-added tax. If the firm is
VAT- registered, the export sales are automatically subject to zero rate; CIR vs.
Toshiba Information Equipment PEZA enterprise, not liable for VAT because it’s a
PEZA enterprise and all sales therefore are considered exports to a foreign territory
GR No. 150154 Aug 9, 2005; Sale of Gold to the BSP is now subject to the VAT at
12% not covered by zero rating

Sec. 106 (2) as amended by TRAIN

The following sales by VAT-registered persons shall be subject to zero percent rate:
(a) Export sales. – the term export sales means:
1. Sale and actual shipment of goods from the Philippines to a foreign country
regardless of shipping arrangement, paid in acceptable foreign currency or its
equivalent in goods or services and accounted through the Banko Sentral ng
Pilipinas
2. Sale and delivery of goods to:
(i) Registered enterprises within a separate customs authority as provided under
special law; and
(ii) Registered enterprises within tourism enterprise zones as declared by TIEZA
subject to the provisions under Republic Act No. 9593 or The Tourism Act of 2009
VETOED
2. 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, packaging or repacking in the Philippines accounted for with the rules
of the BSP
3. Sale of raw materials or packaging materials to an export oriented enterprise whose
export sales exceed 70% of annual production
Any enterprise whose export sales exceed 70% of the total annual production of
the preceding taxable year shall be considered export-oriented enterprise
4. Those considered export sales under EO No. 226, otherwise known as the Omnibus
Investment Code of 1987 and other special laws.
5. The sales of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations: Provided, That the
goods, supplies, equipment, and fuel shall be used exclusively for international
shipping or air transport operations.

The sales of goods, supplies, equipment and fuel to persons engaged in

international shipping or international air transport operations is limited to goods,
supplies, equipment and fuel that shall be used in the transport of goods and
passengers from a port in the Philippines directly to a foreign port, or vice versa,
without docking or stopping at any other port in the Philippines unless the docking
or stopping at any other Philippine port is for the purpose of unloading passengers
and/or cargoes that originated from abroad, or to load passengers and/or cargoes

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 bound for abroad: Provided, further, that if any portion of such fuel, goods,
supplies or equipment is used for purposes other than that mentioned in this
paragraph, such portion of fuel, goods, supplies, and equipment shall be subject to
12% VAT.

Provided, That subparagraphs (2), (3), and (4) hereof shall be subject to the twelve percent
(12%) value-added tax and no longer considered export sales subject to zero percent (0%)
VAT rate upon satisfaction of the following conditions:

(1) The successful establishment and implementation of an enhanced VAT refund

system that grants refunds of creditable input tax within ninety (90) days from
filing of the VAT refund application with the Bureau: Provided, That, to determine
the effectivity of item no. 1, all applications filed from January 1, 2018 shall be
processed and must be decided within ninety (90) days from the filing of the VAT
refund application; and

(2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in
cash by December 31, 2019. Provided, That the Department of Finance shall
establish a VAT refund center in the Bureau of Internal Revenue (BIR) and the
Bureau of Customs (BOC) that will handle the processing and granting of cash
refund of creditable input
tax.

An amount equivalent to five percent (5%) of the total VAT collection of the BIR
and the BOC from the immediately preceding year shall be automatically
appropriated annually and shall be treated as a special account in the General Fund
or as trust receipts for the purpose of funding claims for VAT refund: Provided,
That any unused fund, at the end of the year shall revert to the General Fund.

Provided, further, That the BIR and the BOC shall be required to submit to the
Congressional Oversight Committee on the Comprehensive Tax Reform Program
(COCCTRP) a quarterly report of all pending claims for refund and any unused
fund.

“Foreign Currency denominated Sale definition/provision has been deleted.”

b) Sales to persons or entities whose exemption under special laws or international

agreements to which the Philippines is a signatory effectively subjects such sales to
zero rate
c) Sales to Person or Entities Deemed Tax-Exempt under Special Law or International
Agreement
SBMA under RA 7227, PEZA, ADB IRRI deleted under TRAIN
- BIR Ruling DA 119-06 Filgifts sold goods to nonresident clients for delivery to
residents of the PH paid through credit card charging US currency. WoN zero-
rated sales, and Filgift may get a tax credit/refund. CIR: Yes to both because
Filgifts sales can be considered as foreign currency denominated sale subject to
zero VAT which entitles it to a refund or tax credit from its local purchases directly
attributable to such sales. (sale of goods online for delivery to the Philippines; 033-
98 local seller Zenitak’s transaction with export enterprises in PEZA are zero-rated,
meaning there is no output tax and the input tax are available as tax credits/refunds
(sale to peza enterprise); RMC 74-99 (SALE TO PEZA ENTERPRISES); BIR
321-88 Shinryo was constructing an ADB building and asked WoN they were
exempted from VAT as well. CIR: Yes, because the law provides that not only is

9
 ADB exempt, its suppliers are likewise exempt. The sale of services to ADB are
effectively zero-rated (ADB); BIR Ruling 65-99 WoN Blessed Christ Child
Montessori Foundation is exempt from taxes. It is exempt from taxes and duties
on all its revenues and assets used actually, directly, and exclusively for
educational purposes. However, it may be taxed on income from trade, business,
and other activity not related to the exercise or performance of its educational
purposes or functions. The tax exemption does not cover withholding taxes. It shall
file an annual information return. The books of accounts and other pertinent
records of the institution shall be subject to examination by the BIR.; CIR v.
Burmeister Wain GR 153205 Jan 22 2007 NAPOCOR contracted with foreign
entity and latter subcontracted with Burmeister (15 year contract). Burmeister
wanted to know the tax implications of the transaction (it was paid foreign currency
in the PH) with the foreign corp. Not liable for tax because it relied on the
erroneous BIR Rulings BUT it is not zero-rated. The recipient of the services
(foreign corp) is considered doing business within the PH because the contract with
NAPOCOR is 15 years long.; CIR v. American Express GR 152609, 29 June 2005
Amex-Ph is a servicing unit which collects receivables of Amex-HK from card
members and payment to service establishments in the PH. It asked for a refund of
excess input taxes arguing that it is VAT-registered, and its export sales are subject
to VAT at 0% (zero-rated). SC said YES, exempted. Although the services are
consumed in the PH, there is an exemption which Amex-Ph falls under: paid for
in acceptable foreign currency and accounted for in accordance with the R&R of
the BSP.

Zero Rated Sales: Effectively Zero rated

RR 16-2005 RR 4-2007 RR 13-2018

SEC. 4.106-6. Meaning of the Term Section 6. EFFECTIVELY ZERO- NO AMENDMENT

“Effectively Zero-rated Sale of RATED. - Sec. 4.106-6 of RR No.
Goods and Properties”. – The term 16- 2005 is hereby amended to read
“effectively zero-rated sale of as follows:
goods and properties” shall refer to
the local sale of goods and “SEC. 4.106-6. Meaning of the
properties by a VAT-registered term ‘Effectively Zero-Rated Sale
person to a person or entity who of Goods and Properties’. – The
was granted indirect tax exemption term ‘effectively zero-rated sale of
under special laws or international goods and properties’ shall refer to
agreement. Under these the local sale of goods and
Regulations, transactions which, properties by a VAT- registered
although not involving actual person to a person or entity who
export, are considered as was granted indirect tax exemption
“constructive export” shall be under special laws or international
entitled to the benefit of zero-rating, agreement.”
such as local sales of goods and
properties to persons or entities
covered under pars. (a) no. (3) -
(sale to export-oriented
enterprises), (a) no. (6) - (sale of
goods, supplies, equipment and fuel
to persons engaged in international
shipping or international air
transport operations), (b) (Foreign
Currency Denominated Sale) and

10
 (c) (Sales to Tax-Exempt Persons
or Entities) of the preceding
section.

Except for Export Sale under Sec.

4.106-5(a) and Foreign Currency
Denominated Sale under Sec.
4.106-5(b), other cases of zero-
rated sales shall require prior
application with the appropriate
BIR office for effective zero-rating.
Without an approved application
for effective zero-rating, the
transaction otherwise entitled to
zero-rating shall be considered
exempt. The foregoing rule
notwithstanding, the Commissioner
may prescribe such rules to
effectively implement the
processing of applications for
effective zero-rating.

BIR Ruling 063-93 three corporations decided to merge and the surviving corporation was to acquire all
the assets and liabilities of the other two, in exchange for stocks. There is no gain or loss in the said merger,
hence no tax. As for VAT, all the unused input taxes of the two corporations will be absorbed by the
surviving corporation Merger & Consolidations; 472-93 merger of two corporations, same as above case
no gain or loss but upon the subsequent sale or exchange of the assets or shares of stock acquired by the
parties, the gain derived from such sale or exchange shall be subject to income tax; and Sec. 4.100.5 RR 7-
95 but see RMC 19-99 (can’t find online)

RR 7-95
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 inSections 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 whichare existing as of the occurrence of the
following:

(1) Change of business activity from value-added 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 in
spite 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 twelvemonths of operation.

11
(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 thecontrolling interest of such corporation by

another stockholder or groupof stockholder, 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 consolidated shall be absorbed by the surviving or new corporation

Determination of the tax

How to show VAT as part of the bill RR No. 16-2005
Commissioner of Internal Revenue vs. SM Prime Holdings, Inc. (February 26, 2010) SC: activity
of showing/exhibiting films, motion pictures and the like are not subject to VAT. Legislative history shows
that those who are subject to amusement tax has been exempted from paying VAT
Diaz v. Secretary of Finance (July 19, 2011) tollway operations are VATable because it was not
exempted by the law.

12
 Sec. 107 VAT on Importation
Train law amendment
“Sec. 107. Value-added Tax on Importation of Goods. – “(A) In General. — There shall be levied, assessed
and collected on every importation of goods a value-added tax equivalent to twelve percent (12%) based
on the total value used by the Bureau of Customs in determining tariff and customs duties plus customs
duties, excise taxes, if any, and other charges, such 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 value-added tax shall be based on the landed cost plus excise taxes,
if any.”

In General: RR 16-2005 Sec. 107-1

SEC. 4.107-1. VAT on Importation of Goods. –
(a) In general. – VAT is imposed on goods brought into the Philippines, whether for use in business
or not. The tax shall be based on the total value used by the BOC in determining tariff and customs
duties, plus customs duties, excise tax, if any, and other charges, such as postage, commission, and
similar charges, prior to the release of the goods from customs custody.

In case the valuation used by the BOC in computing customs duties is based on volume or quantity
of the imported goods, the landed cost shall be the basis for computing VAT. 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.

The same rule applies to technical importation of goods sold by a person located in a Special
Economic Zone to a customer located in a customs territory.

No VAT shall be collected on importation of goods which are specifically exempted under Sec.
109 (1) of the Tax Code.

(b) Applicability and payment. – The rates prescribed under Sec. 107 (A) of the Tax Code shall be
applicable to all importations withdrawn from customs custody.

The VAT 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 and shall be liable for VAT due on such importation. The tax
due on such importation shall constitute a lien on the goods, superior to all charges/or liens,
irrespective of the possessor of said goods.

Transfers of Goods by Tax exempt entities: RR 16-2005 Sec. 107-1 (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 and shall
be liable for VAT due on such importation. The tax due on such importation shall constitute a lien on the
goods, superior to all charges/or liens, irrespective of the possessor of said goods.

13
BIR Ruling 100-95 (Toyota corolla) ADB bought tax-free a vehicle and then after its use in their project
DOT became the transferee. DOT sought tax-exemption. CIR: No, a tax-free vehicle acquired and
subsequently sold by a tax-exempt entity to a non-exempt person shall be subject to VAT.

14
 Sec. 108 VAT on Sale of Services and Use or Lease of Properties
Amendment of Sec. 108 under the Train Law has made the sale of electricity by electric
cooperatives subject to the VAT.

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value- added tax equivalent
to twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use
or lease of properties.
(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the Philippines
by VAT- registered persons shall be subject to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP)
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate;
(4) Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof: Provided, That these services shall be
exclusively for international shipping or air transport operations;. (AMENDED UNDER TRAIN)
(5) Services performed by subcontractors and/or contractors in processing, converting, of
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual
production.
(6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country;
and
(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels.
(8) Services rendered to:
(i) Registered enterprises within a separate customs authority as provided under special law; and
(ii) Registered enterprises within tourism enterprise zones as declared by TIEZA subject to the
provisions under Republic Act No. 9593 or The Tourism Act of 2009. (VETOED)
Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be subject to the twelve percent (12%)
value-added tax and no longer subject to zero percent (0%) VAT rate upon the satisfaction of the following
conditions:
(1) The successful establishment and implementation of an enhanced VAT refund system that grants
refunds of creditable input tax within ninety (90) days from the filing of the VAT refund application
with the Bureau: Provided, That, to determine the effectivity of item no. 1, all applications filed from
January 1, 2018 shall be processed and must be decided within ninety (90) days from the filing of the
VAT refund application; and
(2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December
31, 2019.
Provided, That the Department of Finance shall establish a VAT refund center in the Bureau of Internal
Revenue (BIR) and in the Bureau of Customs (BOC) that will handle the processing and granting of cash
refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total value-added tax collection of the BIR and the
BOC from the immediately preceding year shall be automatically appropriated annually and shall be treated

15
as a special account in the General Fund or as trust receipts for the purpose of funding claims for VAT
Refund: Provided, That an unused fund, at the end of the year shall revert to the General Fund.
Provided further, That the BIR and BOC shall be required to submit to the COCCTRP a quarterly
report of all pending claims for refund and any unused fund.

Sec. 4.108-3 of RR No. 16-2005 now reads as follows:

xxx
(F) Sale of electricity by generation, transmission by an entity including the National Grid
Corporation of the Philippines (NGCP) and distribution companies including electric cooperatives
shall be subject to the 12 percent VAT on gross receipts.

Sec. 108 is further amended to include the following provisions under Sec. 108 (B)(8) which now provides:

“(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the
Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.
xxx
(8) Services rendered to:
(i) Registered enterprises within a separate customs authority as provided under special
law; and
(ii) Registered enterprises within tourism enterprise zones as declared by TIEZA subject
to the provisions under Republic Act No. 9593 or The Tourism Act of 2009.” (VETOED)

Subparagraph (B) (1) to (5) covers the following:

“(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, rendered to a person engaged
in business conducted outside the Philippines or to a nonresident person not engaged in business
who is outside the Philippines when the services are performed, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP)
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services
to zero percent (0%) rate;
(4) Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof: Provided, That these services shall be
exclusively for international shipping or air transport operations;.
(5) Services performed by subcontractors and/or contractors in processing, converting, of
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total
annual production.
xxx
Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be subject to the twelve percent
(12%) value-added tax and no longer subject to zero percent (0%) VAT rate upon the
satisfaction of the following conditions:
(1) The successful establishment and implementation of an enhanced VAT refund system that
grants refunds of creditable input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the effectivity of item no. 1, all
applications filed from January 1, 2018 shall be processed and must be decided within ninety (90)
days from the filing of the VAT refund application; and
(2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by
December 31, 2019.

16
 Provided, That the Department of Finance shall establish a VAT refund center in the Bureau of
Internal Revenue (BIR) and in the Bureau of Customs (BOC) that will handle the processing and
granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total value-added tax collection of the BIR and
the BOC from the immediately preceding year shall be automatically appropriated annually and
shall be treated as a special account in the General Fund or as trust receipts for the purpose of
funding claims for VAT Refund: Provided, That an unused fund, at the end of the year shall revert
to the General Fund.
Provided further, That the BIR and BOC shall be required to submit to the COCCTRP a quarterly
report of all pending claims for refund and any unused fund.

The following transactions shall not be affected by the above:

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

Rate and Base Tax

Sale or exchange of services RR 16-2005 Sec. 4.108-1, 2 and 3

RR 16-2005 RR 4-2007 RR 13-2018

SEC. 4.108-1. VAT on the Sale of “SEC. 4.108-1. VAT on the SEC 4.108-1. NO
Services and Use or Lease of Properties. – Sale of Services and Use or AMENDMENT
Sale or exchange of services, as well as the Lease of Properties. – Sale
use or lease of properties, as defined in or exchange of services, as SEC 4.108-2. NO
Sec. 108 (A) of the Tax Code shall be well as the use or lease of AMENDMENT
subject to VAT, equivalent to 10% of the properties, as defined in Sec.
gross receipts (excluding VAT). 108(A) of the Tax Code SEC. 4.108-3.
shall be subject to VAT, Definitions and
SEC. 4.108-2. Meaning of “Sale or equivalent to twelve percent Specific Rules on
Exchange of Services”. – The term “sale (12%) of the gross receipts Selected Services. -
or exchange of services” means the (excluding VAT) starting xxx xxx xxx
performance of all kind of services in the February 1, 2006.” (f) Sale of
Philippines for others for a fee, electricity by
remuneration or consideration, whether in SEC. 4.108-2. NO generation,
kind or in cash, including those performed AMENDMENT transmission by
or rendered by the following: any entity
(1) construction and service “SEC. 4.108-3. Definitions including the
contractors; and Specific Rules on National Grid
(2) stock, real estate, commercial, Selected Services.- Corporation of the
customs and immigration brokers; (3) Xxx xxx xxx. Philippines
lessors of property, whether personal (NGCP), and
or real; (e) Domestic common distribution
(4) persons engaged in warehousing carriers by air and sea are companies
services; subject to twelve percent including electric
(5) lessors or distributors of (12%) VAT on their gross cooperatives shall
cinematographic films; receipts from their transport be subject to twelve
(6) persons engaged in milling, of passengers, goods or percent (12%)
processing, manufacturing or cargoes from one place in VAT on their gross
repacking goods for others; the Philippines to another receipts.
xxx xxx xxx

17
 (7) proprietors, operators, or keepers of
hotels, motels, rest houses, pension
houses, inns, resorts, theaters, and
movie houses;
(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) transportation contractors on their
transport of goods or cargoes,
including persons who transport goods
or cargoes for hire and other domestic
common carriers by land relative to
their transport of goods or cargoes;
(12)common carriers by air and sea
relative to their transport of
passengers, goods or cargoes from one
place in the Philippines to another
place in the Philippines;
(13) sales of electricity by generation,
transmission, and/or distribution
companies;
(14)franchise grantees of electric
utilities, telephone and telegraph, radio
and/or television broadcasting and all
other franchise grantees, except
franchise grantees of radio and/or
television broadcasting whose annual
gross receipts of the preceding year do
not exceed Ten Million Pesos
(P10,000,000.00), and franchise
grantees of gas and water utilities;
(15)non-life insurance companies
(except their crop insurances),
including surety, fidelity, indemnity
and bonding companies; and
(16)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 or
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;
18
place in the Philippines
starting Feb. 1, 2006.
(f) Sale of electricity by
generation, transmission,
and distribution companies
shall be subject to twelve
percent (12%) VAT on their
gross receipts starting Feb.
1, 2006; Provided, that sale
of power or fuel generated
through renewable sources
of energy such as, but not
limited to, biomass, solar,
wind, hydropower,
geothermal, ocean energy,
and other emerging energy
sources using technologies
such as fuel cells and
hydrogen fuels shall be
subject to 0% VAT.
Xxx xxx xxx.
(h) Services of franchise
grantees xxx
xxx.
Gross receipts of all other
franchisees, other than those
covered by
Sec. 119 of the Tax Code,
regardless of how their
franchises may have been
granted, shall be subject to
the twelve percent (12%)
VAT imposed under Sec.
108 of the Tax Code starting
Feb. 1, 2006. This includes
among others, the Philippine
and Amusement Gaming
Corporation (PAGCOR),
and its licensees or
franchisees.
Xxx xxx xxx.
(i) Non-life insurance
companies including surety,
fidelity, indemnity and
bonding companies are
subject to VAT. They are
not liable to the payment of
the premium tax under Sec.
123 of the Tax Code.
(3) The supply of scientific, technical ‘Non-life insurance
industrial or commercial knowledge or companies’ including
information; surety, fidelity, indemnity
(4) The supply of any assistance that is and bonding companies,
ancillary and subsidiary to and is shall include all individuals,
furnished as a means of enabling the partnerships, associations,
application or enjoyment of any such or corporations, including
property, or right as is mentioned in professional reinsurers
subparagraph (2) hereof or any such defined in Sec. 280 of PD
knowledge or information as is 612, otherwise known as the
mentioned in subparagraph (3) hereof; Insurance Code of the
(5) The supply of services by a non- Philippines, mutual benefit
resident person or his employee in associations and
connection with the use of property or government-owned or
rights belonging to, or the installation controlled corporations,
or operation of any brand, machinery engaging in the business of
or other apparatus purchased from property insurance, as
such nonresident person; distinguished from
(6) The supply of technical advice, insurance on human lives,
assistance or services rendered in health, accident and
connection with technical management insurance appertaining
or administration of any scientific, thereto or connected
industrial or commercial undertaking, therewith which shall be
venture, project or scheme; subject to the percentage tax
(7) The lease of motion picture films, under Sec. 123 of the Tax
films, tapes, and discs; and Code.
(8) The lease or the use of, or the right to The gross receipts from non-
use, radio, television, satellite life insurance shall mean
transmission and cable television time. total premiums collected
whether paid in money,
SEC. 4.108-3. Definitions and Specific notes, credits or any
Rules on Selected Services. – substitute for money.
a. Lessors of Property. – All forms of Non-life insurance
property for lease, whether real or premiums are subject to
personal, are liable to VAT subject to the VAT whereas non-life
provisions of Sec. 4.109-1(B)(1)(v) of reinsurance premiums are
these Regulations. not subject to VAT, the
“Real estate lessor” latter being already
includes any person engaged in subjected to VAT upon
the business of leasing or receipt of the insurance
subleasing real property. premiums. Insurance and
Lease of property shall be reinsurance commissions,
subject to VAT regardless of the whether life of non-life, are
place where the contract of lease subject to VAT.
or licensing agreement was
executed if the property leased or (j) Pre-needCompanies xxx
used is located in the Philippines. xxx. Xxx xxx xxx.”
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

19
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 in the
manner prescribed in Sec. 4.114-
2(b) hereof.
“Non-resident
lessor/owner” refers to any
person, natural or juridical, an
alien, or a citizen who establishes
to the satisfaction of the
Commissioner of Internal
Revenue 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.
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

20
 advance payment
is not subject to
VAT. However,
a security deposit
that is applied to
rental shall be
subject to VAT at
the time of its
application.
If the advance
payment
constitutes a pre-
paid rental, then
such payment is
taxable to the
lessor in the
month when
received,
irrespective of
the accounting
method
employed by the
lessor.
(b) “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; or (3) keeping
and storing goods for others, as a
business and for use.
(c) A miller, who is 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, VAT shall be based on his gross
receipts for the month or quarter. If he
receives a share of the milled products
instead of cash, 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.
(d) All receipts from service, hire, or
operating lease of transportation
equipment not subject to the percentage
tax on domestic common carriers and
keepers of garages imposed under Sec.

21
117 of the Tax Code shall be subject to
VAT.
“Common carrier” refers
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.
Common carriers by land
with respect to their gross receipts
from the transport of passengers
including operators of taxicabs,
utility cars for rent or hire driven
by the lessees (rent-a-car
companies), and tourist buses
used for the transport of
passengers shall be subject to the
percentage tax imposed under
Sec. 117 of the Tax Code, but
shall not be liable for VAT.
(e) Domestic common carriers by air and
sea are subject to 10% VAT on their gross
receipts from their transport of passengers,
goods or cargoes from one place in the
Philippines to another place in the
Philippines.
(f) Sale of electricity by generation,
transmission, and distribution companies
shall be subject to 10% VAT on their gross
receipts; Provided, That sale of power or
fuel generated through renewable sources
of energy such as, but not limited to,
biomass, solar, wind, hydropower,
geothermal, ocean energy, and other
emerging energy sources using
technologies such as fuel cells and
hydrogen fuels shall be subject to 0%
VAT.
“Generation companies”
refers to persons or entities
authorized by the Energy
Regulatory Commission (ERC) to
operate facilities used in the
generation of electricity. For this
purpose, generation of electricity
refers to the production of
electricity by a generation
company or a co-generation
facility pursuant to the provisions
of the RA No. 9136 (EPIRA).

22
They shall include all
Independent Power Producers
(IPPs) and NPC/Power Sector
Assets and Liabilities
Management Corporation
(PSALM)-owned generation
facilities.
“Transmission
companies” refers to any person
or entity that owns and conveys
electricity through the high
voltage backbone system and/or
subtransmission assets, e.g. NPC
or TRANSCO. ‘Subtransmission
assets’ shall refer to the facilities
related to the power delivery
service below the transmission
voltages and based on the
functional assignment of asset
including, but not limited to step-
down transformers used solely by
load customers, associated
switchyard/substation, control
and protective equipment,
reactive compensation equipment
to improve power factor,
overhead lines, and the land
where such facilities/equipments
are located. These include NPC
assets linking the transmission
system and the distribution
system which are neither
classified as generation or
transmission.
“Distribution companies”
refer to persons or entities which
operate a distribution system in
accordance with the provisions of
the EPIRA. They shall include
any distribution utility such as an
electric cooperative organized
pursuant to Presidential Decree
No. 269, as amended, and/or
under RA No. 6938, or as
otherwise provided in the EPIRA,
a private corporation, or a
government-owned utility or
existing local government unit
which has an exclusive franchise
to operate a distribution system in
accordance with the EPIRA.
For this purpose, a
distribution system refers to the

23
 system of wires and associated
facilities belonging to a
franchised distribution utility
extending between the delivery
points on the transmission or
subtransmission system or
generator connection and the
point of connection to the
premises of the end-users.
“Gross Receipts” under
this Subsection (f) shall refer to
the following:
(a) Total amount
charged by generation
companies for the sale
of electricity and related
ancillary services;
and/or
(b) Total amount
charged by transmission
companies for
transmission of
electricity and related
ancillary services;
and/or
(c) Total amount
charged by distribution
companies and electric
cooperatives for
distribution and supply
of electricity, and
related electric service.
The universal charge
passed on and collected
by distribution
companies and electric
cooperatives shall be
excluded from the
computation of the
Gross Receipts.
(g) Dealers in securities and lending
investors shall be subject to VAT on the
basis of their gross receipts. However, for
Dealer in Securities, the term “gross
receipts” means gross selling price less
cost of the securities sold..
“Dealer in securities”
means a merchant of stock 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

24
 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”
includes 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.
(h) Services of franchise grantees of
telephone and telegraph, radio and/or
television broadcasting, toll road
operations and all other franchise
grantees, except gas and water utilities,
shall be subject to VAT in lieu of franchise
tax, pursuant to Sec. 20 of RA No.7716, as
amended. However, franchise grantees of
radio and/or television broadcasting
whose annual gross receipts of the
preceding year do not exceed Ten Million
Pesos (P10,000,000.00) shall not be
subject to VAT, but to the three percent
(3%) franchise tax imposed under Sec.
119 of the Tax Code, subject to the
optional registration provisions under Sec.
9.236-1(c) hereof.
Likewise, franchise
grantees of gas and water utilities
shall be subject to two percent
(2%) franchise tax on their gross
receipts derived from the business
covered by the law granting the
franchise pursuant to Sec. 119 of
the Tax Code.
Gross receipts of all other
franchisees, other than those
covered by Sec. 119 of the Tax
Code, regardless of how their
franchises may have been granted,
shall be subject to the 10% VAT
imposed under Sec. 108 of the
Tax Code. This includes among
others, the Philippine and
Amusement Gaming Corporation
(PAGCOR), and its licensees or
franchisees.
Franchise grantees of
telephone and telegraph shall be

25
 subject to VAT on their gross
receipts derived from their
telephone, telegraph, telewriter
exchange, wireless and other
communication equipment
services. However, amounts
received for overseas dispatch,
message, or conversation
originating from the Philippines
are subject to the percentage tax
under Sec. 120 of the Tax Code
and hence exempt from VAT.
(i) Non-life insurance companies
including surety, fidelity, indemnity and
bonding companies are subject to VAT.
They are not liable to the payment of the
premium tax under Sec. 123 of the Tax
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 Sec. 280 of PD 612,
otherwise known as The
Insurance Code of the Philippines,
mutual benefit associations and
government-owned or controlled
corporations, engaging in the
business of property insurance, as
distinguished from insurance on
human lives, health, accident and
insurance appertaining thereto or
connected therewith which shall
be subject to the percentage tax
under Sec. 123 of the Tax Code.
The gross receipts from
non-life insurance shall mean
total premiums collected, whether
paid in money, notes, credits or
any substitute for money.
Non-life reinsurance
premiums are subject to VAT.
Insurance and reinsurance
commissions, whether life or non-
life, are subject to VAT.
VAT due from the
foreign reinsurance company is to
be withheld by the local insurance
company and to be remitted to the
BIR in accordance with Sec.

26
 4.114-2(b)(2) hereof by filing the
Monthly Remittance Return of
Value-Added Tax Withheld (BIR
Form 1600).
(j) Pre-need Companies are corporations
registered with the Securities and
Exchange Commission and
authorized/licensed to sell or offer for sale
pre-need plans, whether a single plan or
multi-plan. They are engaged in business
as seller of services providing services to
plan holders by managing the funds
provided by them and making payments at
the time of need or maturity of the
contract.
As service providers, the
compensation for their services is
the premiums or payments
received from the plan holders.
(k) Health Maintenance
Organizations (HMOs) are
entities, organized in accordance
with the provisions of the
Corporation Code of the
Philippines and licensed by the
appropriate government agency,
which arranges for coverage or
designated managed care services
needed by plan holders/members
for fixed prepaid membership fees
and for a specified period of time.
HMO’s gross receipts shall be the
total amount of money or its
equivalent representing the
service fee actually or
constructively received during the
taxable period for the services
performed or to be performed for
another person, excluding the
value-added tax. The
compensation for their services
representing their service fee, is
presumed to be the total amount
received as enrollment fee from
their members plus other charges
received .

RMC 77-2008 Digest: Fees, per diems, honoraria or allowances being given to a director
of a corporation as such cannot be considered as derived from an economic or commercial
activity that have been pursued “in the course of trade or business”. Rather, said director’s
fees are remunerations paid in the exercise of a right of an owner in the management of a
corporation. Thus, not “in the course of trade or business” as contemplated under Section

27
 105 of the Tax Code. Such fees, per diems, allowances and other income received by the
director as such, are therefore exempt from the imposition of the 12% VAT or 3%
Percentage Tax, notwithstanding that the said payments are not among those enumerated
under Section 109 of the said Code.

VAT Ruling 003-88 (airline tickets) tickets sold to travel agents on a net basis, tax shall be
based on the margin between the selling price to the customer and the net purchase price.
Provided that if such margin exceeds 9% of the gross selling price of the ticket to the
passenger, the transaction shall be considered as resale and therefore subject to VAT. If
paid for in acceptable foreign currency and surrendered in the Central bank, it shall be
considered a zero-rated transaction

RMC 46-2008 Important points: Domestic common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the Philippines to another place
in the Philippines are now subject to 12% VAT (Gross receipts derived from transactions
incidental to the main operations shall likewise be subject to 12% VAT), but with respect
to transport of passengers, goods and cargoes from the Philippines to any foreign port, the
same is subject to VAT at zero-rate (0%). Domestic common carriers which transport
goods and cargoes by land, however, are already covered by VAT even prior to R.A. 9337.

Common carriers by land with respect to their gross receipts from the transport of
passengers including operators of taxicabs, utility cars for rent or hire driven by the lessees
and tourist buses used for the transport of passengers shall continue to be subject to the 3%
percentage tax/common carrier’s tax imposed under Section 117 of the Code, but shall not
be liable for VAT. On-line international air carriers (international air carriers that touch
any port in the Philippines as part of their carriage operation) are exempt from VAT. On-
line international common carrier by air and sea shall continue to be subject to the 3%
common carrier’s tax under Section 118 of the Code.

Zero Rated Sales: automatic vs. effectively zero rated RR 16-2005 Sec. 4.108-5 and Sec. 4.108-6
as amended by RR 4-2007 and RR 13-2018

RR 16-2005 RR 4-2007 RR 13-2008

SEC. 4.108-5. Zero-Rated Sale
of Services. -
(a) In general. - A zero-rated sale
of service (by a VAT-registered
person) is a taxable transaction
for VAT purposes, but shall not
result in any output tax.
However, the input tax on
purchases of goods, properties or
services related to such zero-
rated sale shall be available as tax
credit or refund in accordance
with these Regulations.
(b) Transactions Subject to Zero
Percent (0%) VAT Rate. - The
following services performed in
the Philippines by a VAT-
registered person shall be subject
to zero percent (0%) VAT rate:
“SEC. 4.108-5. Zero- SEC. 4.108-5. Zero Rated Sale of
Rated Sale of Services.- Services. –
(a) In general. – A zero-rated sale of
(b) Transactions Subject service (by a VAT-registered person) is a
to Zero Percent (0%) taxable transaction for VAT purposes,
VAT Rate. - xxx xxx xxx but shall not result in any output tax.
However, the input tax on purchases of
(4) Services rendered to goods, properties or services related to
persons engaged in such zero-rated sale shall be available as
international shipping or tax credit or refund in accordance with
air transport operations, these Regulations.
including leases of (b) Transactions Subject to Zero Percent
property for use thereof; (0%) VAT Rate. – The following services
Provided, however, that performed in the Philippines by a VAT-
the services referred to registered person shall be subject to zero
herein shall not pertain percent (0%) VAT rate:
to those made to (1) Processing, manufacturing or
common carriers by air repacking goods for other persons doing
and sea relative to their business outside the Philippines, which

28
(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
processing, manufacturing or
repacking rendered to a person
engaged in business conducted
outside the Philippines or to a
non-resident person not engaged
in business who is outside the
Philippines when the services are
performed, the consideration for
which is paid for in acceptable
foreign currency and 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
percent (0%) rate;
(4) Services rendered to persons
engaged in international shipping
or air transport operations,
including leases of property for
use thereof; Provided, however,
that the services referred to
herein shall not pertain to those
made to common carriers by air
and sea relative to their transport
of passengers, goods or cargoes
from one place in the Philippines
to another place in the
Philippines, the same being
subject to 10% VAT under Sec.
108 of the Tax Code;
(5) Services performed by
subcontractors and/or
contractors in processing,
converting, or manufacturing
goods for an enterprise whose
export sales exceed seventy
transport of passengers, goods are subsequently exported, where
goods or cargoes from the services are paid for in acceptable
one place in the foreign currency and accounted for in
Philippines to another accordance with the rules and regulations
place in the Philippines, of the BSP;
the same being subject to (2) Services other than processing,
twelve percent (12%) manufacturing or repacking rendered to a
VAT under Sec. 108 of person engaged in business conducted
the Tax Code starting outside the Philippines or to a non-
Feb. 1, 2006; resident person not engaged in business
Xxx xxx xxx.” who is outside the Philippines when the
services are performed, the consideration
Section 13. for which is paid for in acceptable foreign
EFFECTIVELY ZERO- currency and accounted for in accordance
RATED SALE OF with the rules and regulations of the BSP;
SERVICES. - Sec. (3) Services rendered to persons or
4.108-6 of RR No. 16- entities whose exemption under special
2005 is hereby amended laws or international agreements to
to read as follows: which the Philippines is a signatory
“SEC. 4.108-6. Meaning effectively subjects the supply of such
of the term ‘Effectively services to zero percent (0%) rate;
Zero-Rated Sale of (4) Services rendered to persons engaged
Services’. The term in international shipping or air transport
‘effectively zero-rated operations, including leases of property
sales of services’ shall for use thereof: Provided, that these
refer to the local sale of services shall be exclusively for
services by a VAT - international shipping or air transport
registered person to a operations. Thus, the services referred to
person or entity who was herein shall not pertain to those made to
granted indirect tax common carriers by air and sea relative
exemption under special to their transport of passengers, goods or
laws or international cargoes from one place in the Philippines
agreement.” to another place in the Philippines, the
same being subject to twelve percent
(12%) VAT under Sec. 108 of the Tax
Code.
(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 the total annual
production;
(6) Transport of passengers and cargo by
domestic air or sea vessels from the
Philippines to a foreign country. Gross
receipts of international air or shipping
carriers doing business in the Philippines
derived from transport of passengers and
cargo from the Philippines to another
country shall be exempt from VAT;
however, they are still liable to a
percentage tax of three percent (3%)
based on their gross receipts derived from
29
percent (70%) of the total annual
production;
(6) Transport of passengers and
cargo by domestic air or sea
carriers from the Philippines to a
foreign country. Gross receipts
of international air carriers doing
business in the Philippines and
international sea carriers doing
business in the Philippines are
still liable to a percentage tax of
three percent (3%) based on their
gross receipts as provided for in
Sec. 118 of the Tax Code but
shall not to be liable to VAT; and
(7) Sale of power or fuel
generated through renewable
sources of energy such as, but not
limited to, biomass, solar, wind,
hydropower, geothermal and
steam, ocean energy, and other
emerging sources using
technologies such as fuel cells
and hydrogen fuels; Provided,
however, that zero-rating shall
apply strictly to the sale of power
or fuel generated through
renewable sources of energy, and
shall not extend to the sale of
services related to the
maintenance or operation of
plants generating said power.
SEC. 4.108-6. Effectively Zero-
Rated Sale of Services. The term
“effectively zero- rated sales of
services” shall refer to the local
sale of services by a VAT-
registered person to a person or
entity who was granted indirect
tax exemption under special laws
or international agreement.
Under these Regulations,
effectively zero-rated sale of
services shall be limited to local
sales to persons or entities that
enjoy exemptions from indirect
taxes under subparagraph (b)
nos. (3), (4) and (5) of this
Section. The concerned taxpayer
must seek prior approval or prior
confirmation from the
appropriate offices of the BIR so
30
transport of cargo from the Philippines to
another country as provided for in Sec.
118 of the Tax Code; and
(7) Sale of power or fuel generated
through renewable sources of energy
such as, but not limited to, biomass, solar,
wind, hydropower, geothermal and
steam, ocean energy, and other emerging
sources using technologies such as fuel
cells and hydrogen fuels: Provided,
however, that zero-rating shall apply
strictly to the sale of power or fuel
generated through renewable sources of
energy, and shall not extend to the sale of
services related to the maintenance or
operation of plants generating said
power.
Provided, That Subparagraphs (b)(1)
and (b)(5) abovementioned shall be
subject to the twelve percent (12%)
VAT and no longer be subject to zero
percent (0%) VAT rate upon
satisfaction of the following
conditions:
1. The successful establishment and
implementation of an enhanced VAT
refund system that grants and pays
refunds of creditable input tax within
ninety (90) days from the filing of the
VAT refund application with the
Bureau: Provided that, to determine
the effectivity of Item no. 1, all
applications filed from January 1,
2018 shall be processed and decided
within ninety (90) days from the filing
of the VAT refund application.
The 90-day period to process and
decide, pending the establishment of
the enhanced VAT Refund System
shall only be up to the date of approval
of the Recommendation Report on
such application for VAT refund by
the Commissioner or his duly
authorized representative.
However, all claims for refund/tax
credit certificate filed prior to January
1, 2018 shall still be governed by the
one hundred twenty (120)-day
processing period.
The Secretary of Finance shall provide
transitory rules for the grant of refund
under the enhanced VAT Refund
System after the determination of the
that a transaction is qualified for fulfilment of the condition by the
effective zero-rating. Without an Commissioner of Internal Revenue as
approved application for provided in item 1 paragraph 1 hereof;
effective zero-rating, the and
transaction otherwise entitled to 2. All pending VAT refund claims as of
zero-rating shall be considered December 31, 2017 shall be fully paid
exempt. The foregoing rule in cash by December 31, 2019.
notwithstanding, the Provided, That Department of Finance
Commissioner may prescribe shall establish a VAT refund center in
such rules to effectively the BIR and in the Bureau of Customs
implement the processing of (BOC) that will handle the processing
applications for effective zero- and granting of cash refunds of
rating. creditable input tax.
xxx xxx xxx

SEC. 4.108-6
NO AMENDMENT

BIR Ruling 377-05 NIPB had a TSA with NIUS, product development (provide program
coding and design) and business solution services. NIPB is asking if the fees paid to NIPB
by NIUS are zero-rated. CIR: Yes, zero rated because they fall under information services
and no need for prior BIR approval.
BIR Ruling DA 012-05 Axalto (domestic) and SMSI (foreign) entered into agency
activities and services. CIR: payment for services is zero rated because it is paid for in
foreign currency (US dollars) and accounted for according to the R&R of BSP.
RMO 7-2006 Digest: prescribes the guidelines and procedures in the processing of
applications for zero-rating of effectively zero-rated transactions for Value-Added Tax
(VAT) purposes.
All applications for VAT Zero-Rate, except those of large taxpayers, shall be
processed and approved by the Audit Information, Tax Exemption and Incentives Division
(AITEID). Applications for VAT zero-rating of large taxpayers shall be processed by the
Large Taxpayers Audit and Investigation Divisions I and II (LTAID I and II) and Large
Taxpayers District Office (LTDO). Revenue District Offices are not allowed to process
and approve/disapprove application for VAT zero-rate.
The application for VAT Zero-Rate shall be accomplished and 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. 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.
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
30 days from receipt of referral. For disapproved applications, the reason/s for the denial
shall be clearly stated in the application.
Processing of applications requiring favorable endorsement from other regulatory
agencies 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.
Approved applications for VAT Zero-Rate shall take effect on the date the
application was received by the AITEID and 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

31
 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.
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.
CIR v. Amexco GR No. 152609 June 29, 2005 Amex-Ph is a servicing unit which collects
receivables from card members and payment to service establishments. It asked for a
refund of excess input taxes arguing that its VAT-registered and its export sales are subject
to VAT at 0% (zero-rated). SC said YES, exempted. Although the services are consumed
in the PH, there is an exemption which Amex-Ph falls under: paid for in acceptable foreign
currency and accounted for in accordance with the R&R of the BSP.
CIR v. Burmeister Wain GR 153205 Jan 22 2007 NAPOCOR contracted with foreign
entity and latter subcontracted with Burmeister (15 year contract). Burmeister wanted to
know the tax implications of the transaction (it was paid foreign currency in the PH) with
the foreign corp. Not liable for tax because it relied on the erroneous BIR Rulings BUT it
is not zero-rated. The recipient of the services (foreign corp) is considered doing business
within the PH because the contract with NAPOCOR is 15 years long.
CIR v. Placer Dome GR 164365 June 8 2007 Mine tailings from a mining pit escaped and
caused cessation of mining and potential environmental harm. To contain damage, the
owner through its subsidiary (non-resident foreign) contracted the services of local corp.
the payments were in US dollars. SC said that the services were performed and consumed
in the PH. But it falls under the exemption that it was paid for in acceptable foreign
currency and accounted for in accordance with the R&R of the BSP.

Zero Rated vs. Exempt Transactions: CIR vs. Seagate Technology (Phils) zero-rated; VAT-registered and
PEZA GR 153866 Feb 11, 2005

How is it computed: RR 16-2005 sec. 4.108-4

RR 16-2005
NO
SEC. 4.108-4. Definition of Gross Receipts. -“Gross receipts” refers to the total AMENDMENT
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 applied as payments for services rendered and advance
payments actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding VAT.
“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 payor to the account of the contractor.

Invoicing requirements RR 16-2005 Sec. 4.113-1

RR 16-2005
NO
SEC. 4.113-1. Invoicing Requirements. -- AMENDMENT
(A) A VAT-registered person shall issue: --

32
 (1) A VAT invoice for every sale, barter or exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods or properties, and for every sale,
barter or exchange of services.
Only VAT-registered persons are required to print their TIN followed by the word
“VAT” in their invoice or official receipts. Said documents shall be considered as a
“VAT Invoice” or VAT official receipt. All purchases covered by invoices/receipts
other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax.

Change of status: RR 16-2005 Sec. 9.236-6

RR 16-2005
NO
SEC. 9.236-6. Cancellation of VAT Registration. -- A VAT-Registered person may AMENDMENT
cancel his registration for VAT if:
a. He makes written application and can demonstrate to the Commissioner of Internal
Revenue’s satisfaction that his gross sales or receipts for the following twelve (12)
months, other than those that are exempt under Sec. 109 (1) (A) to (U) of the Tax
Code, will not exceed One Million Five Hundred Thousand pesos (P1,500,000.00);
or
b. He has ceased to carry on his trade or business, and does not expect to recommence
any trade or business within the next twelve (12) months.
Some other instances where a VAT-registered person may apply for cancellation of
registration are:
1. A change of ownership, in the case of a single proprietorship;
2. Dissolution of a partnership or corporation;
3. Merger or consolidation with respect to the dissolved corporation(s);
4. A person who has registered prior to planned business commencement, but
failed to actually start his business;
Some instances where taxpayer will update his registration by submitting a duly
accomplished Registration Update Form (BIR Form No. 1905):
1. A person’s business has become exempt in accordance with Sec. 4.109-1(B)
(1) of these Regulations,
2. A change in the nature of the business itself from sale of taxable goods and/or
services to exempt sales and/or services;
3. A person whose transactions are exempt from VAT who voluntarily
registered under VAT system, who after the lapse of three years after his
registration, applies for cancellation of his registration as such; and
4. A VAT-registered person whose gross sales or receipts for three consecutive
years did not exceed P1,500,000.00 beginning November 1, 2005, which
amount shall be adjusted to its present value every three years using the
Consumer Price Index, as published by the NSO. Upon updating his
registration, the taxpayer shall become liable to the percentage tax imposed
in Sec. 116 of the Tax Code. A short period return for the remaining period
that he was VAT-registered shall be filed within twenty five (25) days from
the date of cancellation of his registration.
For purposes of the percentage tax, the taxpayer shall file a monthly return. An initial
return shall be filed for the month following the month of cancellation / update of his
registration.

All applications for cancellation of registration due to closure/cessation or

termination of business shall be subjected to immediate investigation by the BIR
office 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

33
 the registration shall be effected by accomplishing the Registration Update Form
(BIR Form No. 1905).
Any person, who opted to be registered as a VAT taxpayer, may apply for
cancellation of such registration. However, the optional registration as a VAT
taxpayer of a franchise grantee of radio and/or television broadcasting whose gross
receipts for the preceding year did not exceed P10,000,000.00 shall not be revocable.

Determination of the tax

How to show VAT as part of the bill RR No. 16-2005

34
 Sec. 109 Exempt transactions
SEC. 109. Exempt Transactions. —
(1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the
value-added tax.
(A) Saleorimportationofagriculturalandmarinefoodproductsintheiroriginal state, livestock and
poultry of or king generally used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefor.

Products classified under this paragraph 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, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw
cane sugar and molasses, ordinary salt and copra shall be considered in their original state;

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture
of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets);

(C) Importation of personal and household effects belonging to the residents of the Philippines
returning from abroad and nonresident 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;

(D) Importation of professional instruments and implements, wearing apparel, domestic animals,
and personal household effects belonging to persons coming to settle in the Philippines or Filipinos
or their families and descendants who are now residents or citizens of other countries, such parties
hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the profession,
rank or position of the persons importing said items, for their own use and not for sale, barter or
exchange, accompanying such persons, or arriving within a reasonable time: Provided, That the
Bureau of Customs may, upon the production of satisfactory evidence that such persons are actually
coming to settle in the Philippines and that the goods are brought from their former place of abode,
exempt such goods from payment of duties and taxes: Provided, further, That vehicles, vessels,
aircrafts, machineries and other similar goods for use in manufacture, shall not fall within this
classification and shall therefore be subject to duties, taxes and other charges;

(E) Services subject to percentage tax under Title V;

(F) Services by agricultural contract growers and milling for others of palay into rice, corn into
grits and sugar cane into raw sugar;

(G)Medical, dental, hospital and veterinary services except those rendered by professionals.

(H) Educational services rendered by private educational institutions, duly accredited by the
Department of Education (DepED), the Commission on Higher Education (CHED), the Technical
Education and Skills Development Authority (TESDA)and those rendered by government
educational institutions;

(I) Services rendered by individuals pursuant to an employer-employee relationship;

(J) Services rendered by regional or area headquarters established in the Philippines by

multinational corporations which act as supervisory, communications and coordinating centers
for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive
income from the Philippines;

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 (K) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except those under Presidential Decree No. 529;

(L) Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority to their members as well as sale of their produce, whether in its original state or
processed form, to non-members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce;

(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered
with the Cooperative Development Authority;

(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the
Cooperative Development Authority: Provided, That the share capital contribution of each
member does not exceed Fifteen thousand pesos (P15, 000) and regardless of the aggregate
capital and net surplus ratably distributed among the members;

(O) Export sales by persons who are not V A T-registered;

(P) 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 lowcost and socialized housing as defined
by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992,
and other related laws, residential lot valued at One million pesos (P1,500,000) and below, house
and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,
500, 000) and below: Provided, That beginning January 1, 2021, the VAT exemption shall only
apply to the sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business, sale of real property utilized for socialized housing as defined
by Republic Act No. 7279, sale of house and lot, and other residential dwellings with selling price
of not more than Two million pesos (P2,000,000): Provided, further, That every three (3) years
thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price
Index, as published by the Philippine Statistics Authority (PSA);

(Q) Lease of residential unit with a monthly rental not exceeding Fifteen thousand pesos (P15000)

(W) Sale or lease of goods and services to senior citizens and persons with disability as provided
by RA 9994 (Expanded Senior Citizens Act of 2010 And 10754 An act expanding the benefits and
privileges of persons with disability respectively

(X) Transfer of property pursuant to Section 40(C)(2) of the NIRC as amended

(Y) Association dues, membership fees, and other assessments and charges collected by
homeowners’ associations and condominium corporations;

(Z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);

(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
beginning January 1, 2019; and

(BB) Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of Three million pesos (P3,000,000).

RR 16-2005 Sec. 4.109-1

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SEC. 4.109-1. VAT-Exempt Transactions. –
(A)In general. – “VAT-exempt transactions” refer to the sale of goods or properties and/or services
and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed
any tax credit of VAT (input tax) on purchases.
The person making the exempt sale of goods, properties or services shall not bill any output tax to
his customers because the said transaction is not subject to VAT.

(B) Exempt transactions. –

(1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt
from VAT:
(a) Sale or importation of agricultural and marine food products in their original state, livestock
and poultry of a kind generally used as, or yielding or producing foods for human consumption;
and breeding stock and genetic materials therefor.
Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits. Poultry shall
include fowls, ducks, geese and turkey. Livestock or poultry 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,
lobster, shrimps, prawns, oysters, mussels and clams.
Meat, fruit, fish, vegetables and other agricultural and marine food products classified under this
paragraph shall be considered in their original date even if they have undergone the simple
processes of preparation or preservation for the market, such as freezing, drying, salting, broiling,
roasting, smoking or stripping, including those using advanced technological means of
packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar
packaging methods.
Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra
shall be considered as agricultural food products in their original state.
Sugar whose content of sucrose by weight, in the dry state, has a polarimeter reading of 99.5 o
and above are presumed to be refined sugar.
Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be
refined sugar:
(1) product of a refining process,
(2) products of a sugar refinery, or
(3) product of a production line of a sugar mill accredited by the BIR to be producing and/or
capable of producing sugar with polarimeter reading of 99.5o and above, and for which the
quedan issued therefor, and verified by the Sugar Regulatory Administration, identifies the
same to be of a polarimeter reading of 99.5o and above.
Bagasse is not included in the exemption provided for under this section.

(b) Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals generally considered as pets);
“Specialty feeds” refers to non-agricultural feeds or food for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered as pets.

(c) Importation of personal and household effects belonging to residents of the Philippines
returning from abroad and non-resident citizens coming to resettle in the Philippines; Provided,
that such goods are exempt from customs duties under the Tariff and Customs Code of the
Philippines;

(d) Importation of professional instruments and implements, wearing apparel, domestic animals,
and personal household effects (except any vehicle, vessel, aircraft, machinery and other goods

37
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;
Importation of professional instruments and implements, tools of trade, occupation or
employment, wearing apparel, domestic animals, and personal and household effects belonging
to persons coming to settle in the Philippines or Filipinos or their families and descendants who
are now residents or citizens of other countries, such parties hereinafter referred to as overseas
Filipinos, in quantities and of the class suitable to the profession, rank or position of the persons
importing said items, for their own use and not for barter or sale, accompanying such persons,
or arriving within a reasonable time: Provided, That the Bureau of Customs may, upon the
production of satisfactory evidence that such persons are actually coming to settle in the
Philippines and that the goods are brought from their former place of abode, exempt such goods
from payment of duties and taxes: Provided, further, that vehicles, vessels, aircrafts,
machineries and other similar goods for use in manufacture, shall not fall within this
classification and shall therefore be subject to duties, taxes and other charges; (RR 13-2018)

(e) Services subject to percentage tax under Title V of the Tax Code, as enumerated below:
(1) Sale or lease of goods or properties or the performance of services of non-VAT-
registered persons, other than the transactions mentioned in paragraphs (A) to (U) of Sec.
109(1) of the Tax Code, the gross annual sales and/or receipts of which does not exceed
the amount of One Million Five Hundred Thousand Pesos (P1,500,000.00); Provided, That
not later than January 31, 2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer Price Index, as published
by the National Statistics Office (NSO) (Sec. 116 of the Tax Code);
(1) Sale or lease of goods or properties or the performance of services of non-VAT-
registered persons, other than the transactions mentioned in paragraphs (A) to (AA) of Sec.
109(1) of the Tax Code, the gross annual sales and/or receipts of which does not exceed
the amount of Three Million Pesos (P3,000,000.00). (RR 13-2018)
(2) Services rendered by domestic common carriers by land, for the transport of passengers
and keepers of garages (Sec. 117);
(3) Services rendered by international air / shipping carriers (Sec. 118);
(4) Services rendered by franchise grantees of radio and/or television broadcasting whose
annual gross receipts of the preceding year do not exceed Ten Million Pesos
(P10,000,000.00), and by franchise grantees of gas and water utilities (Sec. 119);
(5) Service rendered for overseas dispatch, message or conversation originating from the
Philippines (Sec. 120);
(6) Services rendered by any person, company or corporation (except purely cooperative
companies or associations) doing life insurance business of any sort in the Philippines (Sec.
123);
(7) Services rendered by fire, marine or miscellaneous insurance agents of foreign
insurance companies (Sec. 124);
(8) Services of proprietors, lessees or operators of cockpits, cabarets, night or day clubs,
boxing exhibitions, professional basketball games, Jai-Alai and race tracks (Sec. 125); and
(9) Receipts on sale, barter or exchange of shares of stock listed and traded through the
local stock exchange or through initial public offering (Sec. 127).

(f) Services by agricultural contract growers and milling for others of palay into rice, corn into
grits, and sugar cane into raw sugar;
“Agricultural contract growers” refers to those persons producing for others poultry, livestock
or other agricultural and marine food products in their original state.

38
(g) Medical, dental, hospital and veterinary services, except those rendered by professionals.
Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store,
the sale of drugs and medicine is subject to VAT.
(h) Educational services rendered by private educational institutions duly accredited by the
Department of Education (DepED), the Commission on Higher Education (CHED) and the
Technical Education and Skills Development Authority (TESDA) and those rendered by
government educational institutions;
“Educational services” shall refer to academic, technical or vocational education provided by
private educational institutions duly accredited by the DepED, the CHED and TESDA and those
rendered by government educational institutions and it does not include seminars, in-service
training, review classes and other similar services rendered by persons who are not accredited
by the DepED, the CHED and/or the TESDA;

(i) Services rendered by individuals pursuant to an employer-employee relationship;

(j) Services rendered by regional or area headquarters established in the Philippines by

multinational corporations which act as supervisory, communications and coordinating centers
for their affiliates, subsidiaries or branches in the Asia Pacific Region and do not earn or derive
income from the Philippines;

(k) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws except those granted under PD No. 529 — Petroleum
Exploration Concessionaires under the Petroleum Act of 1949; and

(l) Sales by agricultural cooperatives duly registered and in good standing with the Cooperative
Development Authority (CDA) to their members, as well as sale of their produce, whether in its
original state or processed form, to non-members; their importation of direct farm inputs,
machineries and equipment, including spare parts thereof, to be used directly and exclusively in
the production and/or processing of their produce;
Sales by agricultural cooperatives duly registered and in good standing with the Cooperative
Development Authority (CDA) to their members, as well as sale of their produce, whether in its
original state or processed form, to non-members, their importation of direct farm inputs,
machineries and equipment, including spare parts thereof, to be used directly and exclusively in
the production and/or processing of their produce.
Sale by agricultural cooperatives to non-members can only be exempted from VAT if the
producer of the agricultural products sold is the cooperative itself. If the cooperative is not the
producer (e.g., trader), then only those sales to its members shall be exempted from VAT;
It is to be reiterated however, that sale or importation of agricultural food products in their
original state is exempt from VAT irrespective of the seller and buyer thereof, pursuant to
Subsection (a) hereof. (RR 4-2007)

(m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered and in good standing with the Cooperative Development Authority,

(n) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and
in good standing with the CDA; Provided, That the share capital contribution of each member
does not exceed Fifteen Thousand Pesos (P15,000.00) and regardless of the aggregate capital
and net surplus ratably distributed among the members.
Importation by non-agricultural, non-electric and non-credit cooperatives of machineries and
equipment, including spare parts thereof, to be used by them are subject to VAT.

39
(o) Export sales by persons who are not VAT-registered;

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

(2) Sale of real properties utilized for low-cost housing as defined by RA No. 7279,
otherwise known as the “Urban Development and Housing Act of 1992” and other related
laws, such as RA No. 7835 and RA No. 8763.
“Low-cost housing” refers to housing projects intended for homeless low-income family
beneficiaries, undertaken by the 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 (HLURB) under BP Blg. 220, PD No. 957 or any other similar
law, wherein the unit selling price is within the selling price ceiling per unit of P750,000.00
under RA No. 7279, otherwise known as the “Urban Development and Housing Act of
1992” and other laws, such as RA No. 7835 and RA No. 8763.
"Low-cost housing" refers to housing projects intended for homeless low-income family
beneficiaries, undertaken by the 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 (HLURB) under BP Blg. 220, PD No. 957 or any other similar
law, wherein the unit selling price is within the selling price per unit as set by the
Housing and Urban Development Coordinating Council (HUDCC) pursuant to RA No.
7279 otherwise known as the “Urban Development and Housing Act of 1992” and other
laws. (RR 13-2018)

(3) Sale of real properties utilized for socialized housing as defined under RA No. 7279,
and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling
per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the
NEDA and other related laws.
“Socialized housing” refers to housing programs and projects covering houses and lots or
home lots 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, liberated terms on interest payments, and such other benefits in accordance with
the provisions of RA No. 7279, otherwise known as the “Urban Development and Housing
Act of 1992” and RA No. 7835 and RA No. 8763. “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.
(4) Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house & lot and other residential dwellings valued at Two
Million Five Hundred Thousand Pesos (P2,500,000.00) and below where the instrument of
sale/transfer/disposition was executed on or after November 1, 2005; Provided, That not
later than January 31, 2009 and every three (3) years thereafter, the amounts stated herein
shall be adjusted to its present value using the Consumer Price Index, as published by the
National Statistics Office (NSO); Provided, further, that such adjustment shall be published
through revenue regulations to be issued not later than March 31 of each year;

40
 Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00)
and below, or house & lot and other residential dwellings valued at Two Million Five
Hundred Thousand Pesos (P2,500,000.00) and below, as adjusted in 2011 using the 2010
Consumer Price Index values.

If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the
purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only
if the aggregate value of the lots do not exceed P1,500,000.00. Adjacent residential lots,
although covered by separate titles and/or separate tax declarations, when sold or disposed
to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall
be presumed as a sale of one residential lot.

Provided, That beginning January 1, 2021, the VAT exemption shall only apply to sale
of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business, sale of real property utilized for socialized
housing as defined by Republic Act No. 7279, sale of house and lot, and other
residential dwellings with selling price of not more than Two Million Pesos
(P2,000,000.00): Provided, further, That every three (3) years thereafter, the amounts
stated herein shall be adjusted to its present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (PSA). (RR 13-2018)

(q) Lease of residential units with a monthly rental per unit not exceeding Ten Thousand Pesos
(P10,000.00), regardless of the amount of aggregate rentals received by the lessor during the
year; Provided, that not later than January 31, 2009 and every three (3) years thereafter, the
amount of P10,000.00 shall be adjusted to its present value using the Consumer Price Index, as
published by the NSO;
The foregoing notwithstanding, lease of residential units where the monthly rental per unit
exceeds Ten Thousand Pesos (P10,000.00) but the aggregate of such rentals of the lessor during
the year do not exceed One Million Five Hundred Pesos (P1,500,000.00) shall likewise be
exempt from VAT, however, the same shall be subjected to three percent (3%) percentage tax.
In cases where a lessor has several residential units for lease, some are leased out for a monthly
rental per unit of not exceeding P10,000.00 while others are leased out for more than P10,000.00
per unit, his tax liability will be as follows:
1. The gross receipts from rentals not exceeding P10,000.00 per month per unit shall
be exempt from VAT regardless of the aggregate annual gross receipts.
2. The gross receipts from rentals exceeding P10,000.00 per month per unit shall be
subject to VAT if the aggregate annual gross receipts from said units only (not including
the gross receipts from units leased for not more than P10,000.00) exceeds P1,500,000.00.
Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of
the Tax Code.
The term ‘residential units’ shall refer to apartments and houses & lots used for residential
purposes, and buildings or parts or units thereof used solely as dwelling places (e.g.,
dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms.
The term ‘unit’ shall mean an apartment unit in the case of apartments, house in the case
of residential houses; per person in the case of dormitories, boarding houses and bed spaces;
and per room in case of rooms for rent.

Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand
Pesos (P15,000.00).
The foregoing notwithstanding, lease of residential units where the monthly rental per unit
exceeds Fifteen Thousand Pesos (P15,000.00), but the aggregate of such rentals of the
lessor during the year do not exceed Three Million Pesos (P3,000,000.00) shall likewise

41
be exempt from VAT; however, the same shall be subject to three percent (3%) percentage
tax under Section 116 of the Tax Code.
In cases where a lessor has several residential units for lease, some are leased out for a
monthly rental per unit of not exceeding P15,000.00 while others are leased out for more
than P15,000.00 per unit, his tax liability will be as follows:
1. The gross receipts from rentals not exceeding P15,000.00 per month per unit shall
be exempt from VAT regardless of the aggregate annual gross receipts. It is also
exempt from the 3% percentage tax.
2. The gross receipts from rentals exceeding P15,000.00 per month per unit shall be
subject to VAT if the aggregate annual gross receipts from said units only exceeds
P3,000,000.00. Otherwise, the gross receipts will be subject to the 3% tax imposed
under Section 116 of the Tax Code.

In case of mixed transactions, the abovementioned rule should be observed.

The term ‘residential units’ shall refer to apartments and houses & lots used for residential
purposes, and buildings or parts or units thereof used solely as dwelling places (e.g.,
dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms,
lodging houses, inns and pension houses.

The term ‘unit’ shall mean an apartment unit in the case of apartments, house in the case
of residential houses; per person in the case of dormitories, boarding houses and bed spaces;
and per room in case of rooms for rent.

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

Illustration 2: A lessor rents his 15 residential units for P15,500 per month. During the
taxable year, his accumulated gross receipts
amountedtoP2,790,000.HeisnotsubjecttoVATsincehisaccumulated gross receipts did
not exceed P3,000,000. He is, however, subject to 3% Percentage Tax since the
monthly rent per unit is more than P15,000.00.
Using the same example, assuming he has 20 residential units with the same monthly
rent per unit and his accumulated gross receipts during the taxable year amounted to
P3,720,000, he is already subject to VAT since the accumulated earnings exceeded
P3,000,000 and the monthly rent per unit is more than P15,000.00.

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

42
 Using the same example, assuming the lessor has 5 commercial units and his
accumulated gross receipts during the taxable year amounted to P5,400,000
(P3,600,000 from commercial units and P1,800,000 from residential units), he is
subject to VAT with respect to P3,600,000 since it exceeded P3,000,000. The
P1,800,000 accumulated receipts from residential units are not subject to Percentage
Tax and exempt from VAT since the monthly rent is not more than P15,000.

Illustration 4: A lessor rents his 5 commercial and 10 residential units for monthly rent
of P60,000 and P15,500 per unit, respectively. During the taxable year, his
accumulated gross receipts amounting to P5,460,0000 (P3,600,000 from commercial
units and P1,860,000 from residential units) shall be subject to VAT since it exceeded
the P3,000,000 threshold and the monthly rent of residential units is more than
P15,000. (RR 13-2018)

(r) Sale, importation, printing or publication of books and any newspaper, magazine, review, or
bulletin which appears at regular intervals with fixed prices for subscription and sale and which
is not devoted principally to the publication of paid advertisements;

(s) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international transport operations; Provided,
that the exemption from VAT on the importation and local purchase of passenger and/or cargo
vessels shall be limited to those of one hundred fifty (150) tons and above, including engine and
spare parts of said vessels; Provided, further, that the vessels to be imported shall comply with
the age limit requirement, at the time of acquisition counted from the date of the vessel’s original
commissioning, as follows: (i) for passenger and/or cargo vessels, the age limit is fifteen (15)
years old, (ii) for tankers, the age limit is ten (10) years old, and (iii) For high-speed passenger
crafts, the age limit is five (5) years old; Provided, finally, that exemption shall be subject to the
provisions of Section 4 of Republic Act No. 9295, otherwise known as “The Domestic Shipping
Development Act of 2004”;
Transport of passengers by international carriers; (RR-13-2018)

(t) Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations; Provided, that the said fuel, goods and supplies shall be used exclusively
or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly
to a foreign port without stopping at any other port in the Philippines; Provided, further, that if
any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this
paragraph, such portion of fuel, goods and supplies shall be subject to 10% VAT;

Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international transport operations:
Provided, however, that the exemption from VAT on the importation and local purchase of
passenger and/or cargo vessels shall be subject to the requirements on restriction on vessel
importation and mandatory vessel retirement program of Maritime Industry Authority
(MARINA); (RR 13-2018)

(u) Services of banks, non-bank financial intermediaries performing quasi-banking functions,

and other non-bank financial intermediaries subject to percentage tax under Secs. 121 and 122
of the Tax Code, such as money changers and pawnshops; and
Importation of fuel, goods and supplies by persons engaged in international shipping or
air transport operations: Provided, That the fuel, goods and supplies shall be used for
international shipping or air transport operations. Thus, said fuel, goods and supplies shall
be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the
Philippines directly to a foreign port, or vice versa, without docking or stopping at any other

43
port in the Philippines unless the docking or stopping at any other Philippine port is for the
purpose of unloading passengers and/or cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad: Provided, further, that if any portion of such fuel,
goods or supplies is used for purposes other than that mentioned in this paragraph, such portion
of fuel, goods and supplies shall be subject to twelve percent (12%) VAT; (RR 13-2018)

(v) Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of One Million Five Hundred Thousand Pesos (P1,500,000.00); Provided, That not later
than January 31, 2009 and every three (3) years thereafter, the amount of P1,500,000.00 shall
be adjusted to its present value using the Consumer Price Index, as published by the NSO.
For purposes of the threshold of P1,500,000.00, the husband and the wife shall be considered
separate taxpayers. However, the aggregation rule for each taxpayer shall apply. For instance,
if a professional, aside from the practice of his profession, also derives revenue from other lines
of business which are otherwise subject to VAT, the same shall be combined for purposes of
determining whether the threshold has been exceeded. Thus, the VAT-exempt sales shall not be
included in determining the threshold.
Services of banks, non-bank financial intermediaries performing quasi-banking functions,
and other non-bank financial intermediaries such as money changers and pawnshops, subject
to percentage tax under Secs. 121 and 122, respectively, of the Tax Code; (RR 13-2018)

(w) Sale or lease of goods and services to senior citizens and persons with disabilities, as
provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754
(An Act Expanding the Benefits and Privileges of Persons with Disability), respectively;

(x) Transfer of Property pursuant to Section 40(C)(2) of the Tax Code, as amended;

(y) Association dues, membership fees, and other assessments and charges collected on a
purely reimbursement basis by homeowners’ associations and condominium corporations
established under Republic Act No. 9904 (Magna Carta for Homeowners and
Homeowners’ Association) and Republic Act No. 4726 (The Condominium Act),
respectively;

(z) Sale of gold to the Bangko Sentral ng Pilipinas;

(aa) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension to beginning January 1, 2019 as determined by the Department of Health;
and

(bb) Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of Three Million Pesos (P3,000,000.00).
Self-employed individuals and professionals availing of the 8% tax on gross sales and/or
receipts and other non-operating income, under Sections 24(A)(2)(b) and 24(A)(2)(c)(2)(a)
of this Code shall also be exempt from the payment of twelve (12%) VAT.
Illustration 5: Mr. JMLH signified his intention to be taxed at “8%
income tax in lieu of the graduated income tax rates and percentage tax under Section 116”
in his 1st Quarter Income Tax. However, his gross sales/receipts during the taxable year
have exceeded the VAT threshold as follows:

44
 Mr. JMLH lost the option to pay the 8% commuted tax rate when his gross sales/receipts
exceeded the three million threshold during the 4th Quarter. For business tax purposes,
he is subject to the 12% VAT prospectively starting November 2018. He is also required
to update his registration from non-VAT to VAT on or before November 30, 2018. (RR 13-
2018)

RA 10378 amending Sec. 28(A)(3)(a), 109, 118, and 236 of the NIRC

SEC. 28. (A) Tax on Resident Foreign Corporations

(3). International – Carrier. — An international carrier doing business in the Philippines shall pay
a tax of two and one-half percent (21/2 %) on its ‘Gross Philippine Billings’ as defined hereunder:

(a) International Air Carrier. — ‘Gross Philippine Billings’ refers to the amount of gross revenue
derived from carriage of persons, excess baggage, cargo, and mail originating from the Philippines
in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of
payment of the ticket or passage document: Provided, That tickets revalidated, exchanged and/or
indorsed to another international airline form part of the Gross Philippine Billings if the passenger
boards a plane in a port or point in the Philippines: Provided, further, That for a flight which
originates from the Philippines, but transshipment of passenger takes place at any part outside the
Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the
leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine
Billings.

SEC. 118. Percentage Tax on International Carriers. —

(A) International air carriers doing; business in the Philippines on their gross receipts derived from
transport of cargo from the Philippines to another country shall pay a tax of three percent (3%) of
their quarterly gross receipts.
(B) International shipping carriers doing business in the Philippines on their gross receipts derived
from transport of cargo from the Philippines to another country shall pay a tax equivalent to three
percent (3%) of their quarterly gross receipts."

SEC. 236. Registration Requirements. —1âwphi1

(A) Requirements. — x x x

45
(G) Persons Required to Register for Value-Added Tax. —
(1) Any person who, in the course of trade or business, sells, barters or exchanges goods or
properties, or engages in the sale or exchange of services, shall be liable to register for value-added
tax if:
(a) His gross sales or receipts for the past twelve (12) months, other than those that are exempt
under Section 109(A) to (V), have exceeded One million five hundred thousand pesos (P1,500,000);
or
(b) There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt under Section 109(A) to (V), will exceed One million five
hundred thousand pesos (P1,500,000).
xxx

RA 10968 amended Sec. 109(1)(D) and (P) and (Q) and (W) and (X) to (BB) to read as follows:

Sec. 109(1)
(D) Importation of professional instruments and implements, wearing apparel, domestic animals,
and personal household effects belonging to persons coming to settle in the Philippines or Filipinos
or their families and descendants who are now residents or citizens of other countries, such parties
hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the profession,
rank or position of the persons importing said items, for their own use and not for sale, barter or
exchange, accompanying such persons, or arriving within

(P) 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 lowcost and socialized housing as defined
by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992,
and other related laws, residential lot valued at One million pesos (P1,500,000) and below, house
and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,
500, 000) and below: Provided, That beginning January 1, 2021, the VAT exemption shall only
apply to the sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business, sale of real property utilized for socialized housing as defined
by Republic Act No. 7279, sale of house and lot, and other residential dwellings with selling price
of not more than Two million pesos (P2,000,000): Provided, further, That every three (3) years
thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price
Index, as published by the Philippine Statistics Authority (PSA);

(Q) Lease of residential unit with a monthly rental not exceeding Fifteen thousand pesos (P15000)

(W) Sale or lease of goods and services to senior citizens and persons with disability as provided
by RA 9994 (Expanded Senior Citizens Act of 2010 And 10754 An act expanding the benefits and
privileges of persons with disability respectively

(X) Transfer of property pursuant to Section 40(C)(2) of the NIRC as amended

(Y) Association dues, membership fees, and other assessments and charges collected by
homeowners’ associations and condominium corporations;

(Z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);

(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
beginning January 1, 2019; and

46
 (BB) Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of Three million pesos (P3,000,000).

Tambunting Pawnshop, Inc vs. Commissioner of Internal Revenue (January 21, 2010) Tambunting
is a pawnshop and was assessed for deficiency VAT for the year 1999. SC said that not liable
because 1) before EVAT (1994) they were liable for lending investor’s tax; 2) from 1996-2002 they
were liable for VAT because they were treated as VAT-able enterprises under “sale or exchange of
services” under Sec. 108(A) of the Tax Code of 1997, but it kept being deferred until 2002; 3) VAT
was imposed in 2003 but in 2004, they were no longer held as VAT-able entities, but are subject to
percentage tax. Since 1999 is part of the years when VAT was deferred, it’s not liable.
Commissioner of Internal Revenue vs. Philippine Health Care Providers, Inc. (April 24, 2007) PHC
is a conduit between premium paying members and accredited medical service providers (but not
actually rendering medical services). It got a VAT ruling that it was tax-exempt but later on CIR
assessed it with deficiency VAT. SC: liable for VAT but since it relied in good faith in the VAT
ruling and did not misrepresent its business, it’s vat-exempt
Accenture, Inc. vs. Commissioner of Internal Revenue (July 11, 2013) Accenture is local company
providing management consulting, business strategies development, and selling and/or licensing of
software. It had unused input taxes and claims refunds/credits. SC said even prior to the 1997 Tax
Code, the rule is that not only must it be proven that the company is a foreign corp., it must be
proven that it is a nonresident foreign corp, meaning doing business outside the PH. Accenture
failed to do this.
Commissioner of Internal Revenue vs. Sekisui Jushi Philippines, Inc. (July 21, 2006) Sekisui is a
PEZA-registered enterprise and all its sales are exports. SC: It is entitled to VAT credit/refund
because all of its sales are zero-rated. PEZA enterprises can choose between preferential tax rate in
lieu of all taxes or an income tax holiday but be liable for all national revenue taxes. Sekisui chose
the latter, thus liable for VAT but since all of its sales are zero-rated, it’s entitled to tax refund/credit
of all its unused input taxes.
Commissioner of Internal Revenue vs. Seagate Technology (February 11, 2005) Also in PEZA,
enjoys tax preferential treatment and is exempt from all internal revenues. Although the
transactions itself are not exempt from VAT, being an indirect tax that can be shifted, it is entitled
to tax credits because its sales to foreign corps. not doing business in the PH are zero-rated.
Commissioner of Internal Revenue vs. Toshiba Information Equipment (August 9, 2005) PEZA
enterprise, not liable for VAT because it’s a PEZA enterprise and all sales therefore are considered
exports to a foreign territory
Commissioner of Internal Revenue vs. Contex Corporation (July 2, 2004) 2004 Contex is a
domestic corporation in Subic Bay Freeport Zone and thus a non-VAT taxpayer (VAT Exempt).
Its suppliers shifted the VAT to Contex and thus the latter claims refunds. The SC said no refund
because tax liability is different from tax burden. Only the burden was shifted. Also, it is the zero-
rated seller which can get credit/refund, not the VAT-exempt buyer.

Special Topics
Effect of issuing erroneous receipt Sec. 113 NIRC RR 16-2005 Sec. 4.113-4
SEC. 113 OF THE NIRC
(D) Consequence of Issuing Erroneous VAT Invoice or VAT Official Receipt. —
(1) If a person who is not a VAT-registered persons issues an invoice or receipt showing his
Taxpayer Identification Number (TIN), followed by the word "VAT";
(a) The issuer shall, in addition to any liability to other percentage taxes, be liable to:
(i) The tax imposed in Section 106 or 108 without the benefit of any input tax
credit; and
(ii) A 50% surcharge under Section 248(B) of this Code;

47
 (b) The VAT shall, if the other requisite information required under Subsection (B) hereof
is shown on the invoice or receipt, be recognized as an input tax credit to the purchaser
under Section 110 of this Code.
(2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT- exempt
transaction, but fails to display prominently on the invoice or receipt the term 'VAT exempt sale',
the issuer shall be liable to account for the tax imposed in section 106 or 108 as if Section 109 did
not apply.

RR 16-2005 RR 13-2018

SEC. 4. 113-4. Consequences of Issuing Erroneous VAT Invoice or VAT NO

Official Receipt. -- AMENDMENT
(A) Issuance of a VAT Invoice or VAT Receipt by a non-VAT person. – If a
person who is not VAT-registered issues an invoice or receipt showing his
TIN, followed by the word “VAT”, the erroneous issuance shall result to the
following:
(1) The non-VAT person shall be liable to:
(i) the percentage taxes applicable to his transactions;
(ii) VAT due on the transactions under Sec. 106 or 108 of the Tax
Code, without the benefit of any input tax credit; and
(iii) a 50% surcharge under Sec. 248 (B) of the Tax Code;
(2) VAT shall be recognized as an input tax credit to the purchaser under
Sec. 110 of the Tax Code, provided the requisite information required
under Subsection 4.113 (B) of these Regulations is shown on the invoice
or receipt.

(B) Issuance of a VAT Invoice or VAT Receipt on an Exempt Transaction by

a VAT-registered Person – If a VAT-registered person issues a VAT invoice
or VAT official receipt for a VAT-exempt transaction, but fails to display
prominently on the invoice or receipt the words “VAT-exempt sale”, the
transaction shall become taxable and the issuer shall be liable to pay VAT
thereon. The purchaser shall be entitled to claim an input tax credit on his
purchase.

VAT receipts vs. VAT invoice Kepco Phil. Corp vs. CIR GR 181858 Nov. 24, 2011 Kepco
exclusively sells electricity to NPC, it wanted to claim unused input taxes, but it was not completely
granted by the BIR because it failed to put zero-rated and TIN-VAT on its receipts and invoice. It
argued that for purposes of substantiating input VAT, the two are one and the same. SC: NO,
receipts and invoices are different. Receipts are the best evidence of the payment of the goods and
services (proof of payment) by the buyer while invoices are the best evidence of the sale of goods
and services (proof of transaction).

Joint ventures BIR Ruling 140-00 A joint venture was entered into by four corporations to develop
certain parcels of land in two barangays. They sought a tax ruling for the tax liability of the JV.
CIR: Not liable for income taxes because it’s not embraced under the tax code as a corporation.
Contribution of capital and saleable lots is not taxable because there is no sale, exchange, etc. Also,
the division of the saleable lots is not taxable because it is a mere dissolution of the coownership.

Subsistence level RMC 4-98 (can’t find online)

Withholding tax on VAT RR 16-2005 Sec. 4.114-2 as amended by RR 4-2007

RR 6-2005 RR 4-2007 RR 13-2018

48
SEC. 4.114-2. Withholding of SEC. 4.114 -2. Withholding SEC.4-114-2. Withholding
VAT on Government Money of VAT on Government of VAT on Government
Payments and Payments to Non- Money Payments and Money Payments and
Residents. – Payments to Non-Residents. Payments to Non-Residents.
–
(a) The government or any of its (a) Withholding of Value-
political subdivisions, (a) The government or any added Tax. – The
instrumentalities or agencies, of its political subdivisions, Government or any of its
including government-owned or instrumentalities or political subdivisions,
controlled corporations agencies including instrumentalities or agencies,
(GOCCs) shall, before making government-owned or including government-
payment on account of each controlled corporations owned or -controlled
purchase of goods and/or of (GOCCs) shall, before corporations (GOCCs) shall,
services taxed at 10% VAT making payment on account before making payment on
pursuant to Secs. 106 and 108 of of each purchase of goods account of each purchase of
the Tax Code, deduct and and/or of services taxed at goods and services which are
withhold a final VAT due at the twelve percent (12%) VAT subject to the value- added tax
rate of five percent (5%) of the pursuant to Secs. 106 and imposed in Sections 106 and
gross payment thereof. 108 of the Tax Code, deduct 108 of this Code, deduct and
and withhold a final VAT withhold the value-added tax
The five percent (5%) final VAT due at the rate of five imposed in Sections 106 and
withholding rate shall represent percent (5%) of the gross 108 of this Code, deduct and
the net VAT payable of the payment thereof. withhold a final value-added
seller. The remaining five tax at the rate of five percent
percent (5%) effectively The five percent (5%) final (5%) of the gross payment
accounts for the standard input VAT withholding rate shall thereof: provided, that
VAT for sales of goods or represent the net VAT beginning January 1, 2021,
services to government or any of payable of the seller. The the VAT withholding
its political subdivisions, remaining seven percent system under this
instrumentalities or agencies (7%) effectively accounts subsection shall shift from
including GOCCs, in lieu of the for the standard input VAT final to a creditable system:
actual input VAT directly for sales of goods or Provided, That the payment
attributable or ratably services to government or for lease or use of properties
apportioned to such sales. Should any of its political or property rights to
actual input VAT exceed five subdivisions, nonresident owners shall be
percent (5%) of gross payments, instrumentalities or subject to twelve percent
the excess may form part of the agencies including GOCCs (12%) withholding tax at the
sellers’ expense or cost. On the in lieu of the actual input time of payment: Provided,
other hand, if actual input VAT is VAT directly attributable or however, that payments for
less than 5% of gross payment, ratably apportioned to such purchase of goods and
the difference must be closed to sales. Should actual input services arising from
expense or cost. VAT attributable to sale to projects funded by Official
government exceeds seven Development Assistance
(b) The government or any of its percent (7%) of gross (ODA) as defined under
political subdivisions, payments, the excess may Republic Act No. 8182,
instrumentalities or agencies, form part of the sellers’ Otherwise known as the
including GOCCs, as well as expense or cost. On the “Official Development
private corporations, individuals, other hand, if actual input Assistance Act of 1996,” as
estates and trusts, whether large VAT attributable to sale to amended, shall not be
or non-large taxpayers, shall government is less than subject to the
withhold ten percent (10%) VAT seven percent (7%) of gross Final/Creditable
with respect to the following payment, the difference Withholding Taxes as
payments: imposed in this subsection.

49
 (1) Lease or use of properties must be closed to expense or
or property rights owned by cost. xxx xxx xxx
non-residents;
(2) Services rendered to local (b) The government or any
insurance companies, with of its political subdivisions,
respect to reinsurance instrumentalities or
premiums payable to non- agencies including GOCCs,
residents; and as well as private
(3) Other services rendered in corporation, individuals,
the Philippines by non- estates and trusts, whether
residents. large or non-large
taxpayers, shall withhold
In remitting VAT withheld, twelve percent (12%) VAT,
the withholding agent shall starting February 1, 2006,
use BIR Form No. 1600- with respect to the following
Remittance Return of VAT payments:
and Other Percentage Taxes (1) Lease or use of
Withheld. properties or property
VAT withheld and paid for rights owned by non-
the non-resident recipient residents; and
(remitted using BIR Form (2) Other services
No. 1600), which VAT is rendered in the
passed on to the resident Philippines by non-
withholding agent by the residents.
non-resident recipient of the
income, may be claimed as xxx xxx xxx.
input tax by said VAT-
registered withholding agent
upon filing his own VAT
Return, subject to the rule on
allocation of input tax among
taxable sales, zero-rated sales
and exempt sales. The duly
filed BIR Form No. 1600 is
the proof or documentary
substantiation for the claimed
input tax or input VAT.

Nonetheless, if the resident

withholding agent is a non-VAT
taxpayer, said passed-on VAT by
the non-resident recipient of the
income, evidenced by the duly
filed BIR Form No. 1600, shall
form part of the cost of purchased
services, which may be treated
either as an "asset" or "expense",
whichever is applicable, of the
resident withholding agent.

VAT withheld under this Section

shall be remitted within ten (10)
days following the end of the

50
 month the withholding was
made.

When to pay RR 16-2005 Sec. 4.114-1

SEC. 4.114-1. 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 quarterly gross sales or receipts within twenty five (25) days following the close of taxable
quarter using the latest version of Quarterly VAT Return. The term “taxable quarter” shall mean
the quarter that is synchronized to the income tax quarter of the taxpayer (i.e., the calendar quarter
or fiscal quarter).

Every person liable to pay the value- added tax imposed under this Title shall file a quarterly return
of the amount of his gross sales or receipts within twenty-five (25) days following the close of each
taxable quarter prescribed for each taxpayer. The term “taxable quarter” shall mean that quarter
that is synchronized with the income tax quarter of the taxpayer (i.e., the calendar quarter or fiscal
quarter. Provided, however, That VAT-registered persons shall pay the value-added tax on on a
monthly basis: Provided, finally That beginning January 1, 2023, the filing and payment
required under the Tax Code shall be done within twenty-five (25) days following the close of
each taxable quarter. (RR 13-2018)

Amounts reflected in the monthly VAT declarations for the first two (2) months of the quarter shall
still be included in the quarterly VAT return which reflects the cumulative figures for the taxable
quarter. Payments in the monthly VAT declarations shall, however, be credited in the quarterly
VAT return to arrive at the net VAT payable or excess input tax/over-payment as of the end of a
quarter.

Example. — Suppose the accounting period adopted by the taxpayer is fiscal year ending
October 2003, the taxpayer has to file monthly VAT declarations for the months of
November 2002, December 2002, and for the months of February, March, May, June, August,
and September for Year 2003, on or before the 20th day of the month following the close of
the taxable month. His quarterly VAT returns corresponding to the quarters ending January,
April, July, and October 2003 shall, on the other hand, be filed and taxes due thereon be paid,
after crediting payments reflected in the Monthly VAT declarations, on or before February
25, May 25, August 25, and November 25, 2003, respectively.

The monthly VAT Declarations (BIR Form 2550M) of taxpayers whether large or non- large shall
be filed and the taxes paid not later than the 20th day following the end of each month.

For purposes of filing returns under the Electronic Filing and Payment System (EFPS) the taxpayers
classified under the following business industries shall be required to file Monthly VAT
Declarations on or before the dates prescribed as follows:

GROUP A -25 GROUP B – 24 days GROUP C – GROUP D – 22 days GROUP E –

days 23 days 21 days
following the
end of the
month
Insurance and Manufacture & Retail Sale Air Transport Activities of
Pension Repair of Furniture Wholesale Electricity, Gas, Membership
Funding Basic Metals Trade and Steam & Hot Water Organizations
Activities Chemicals and Commission Supply Inc.

51
 Auxiliary to Chemical Products Trade Sale, Postal & Health and
Financial Coke, Refined Maintenance, Telecommunications Social Work
Intermediation Petroleum & Fuel Repair of Publishing, Printing Public Admin
Construction Products Electrical Motor & Reproduction of & Defense
Water Machinery & Vehicle, Recorded Media Compulsory
Transport Apparatus N.E.C. Sale of Recreational, Social
Hotels and Fabricated Metal Automotive Cultural & Sporting Security
Restaurants Products Fuel Activities Research and
Land Food, Products & Collection, Recycling Development
Transport Beverages Purification Renting of Goods & Agricultural,
Machinery & And Equipment Hunting, and
Equipment NEC Distribution Supporting & Forestry
Medical, Precision, of Water Auxiliary Transport Farming of
Optical Instruments Computer Activities Animals
Motor Vehicles, and Related Fishing
Trailers & Semi- Activities Other Service
Trailers Real Estate Activities
Office, Accounting & Activities Miscellaneous
Computing Business
Machinery Activities
Other Non-Metallic Unclassified
Mineral Products
Other Transport
Equipment
Other Wearing
Apparel
Paper and Paper
Products
Radio, TV &
Communication
Equipment/Apparatus
Rubber & Plastic
Products
Textiles
Tobacco Products
Manufacture of
Wood & Wood
Products
Manufacturing
N.E.C.
Metallic Ore Mining
Non-Metallic Mining
& Quarrying

(B) Payment of VAT

1. Advance Payment – The following are subject to the advance payment of VAT: 1. Sale of
Refined Sugar.—
a. Requirement to Pay Advance VAT on Sale of Refined Sugar. – An advance VAT on the sale
of refined sugar shall be paid by the owner/seller to the BIR through an AAB or to the Revenue
Collection Officer (RCO) or deputized City or Municipal Treasurer in places where there are no
AABs before any refined sugar can be withdrawn from any sugar refinery/mill.

52
b. Prohibition of Withdrawal/Transfer of Ownership. – The proprietor or operator of a sugar
mill/refinery shall not allow any withdrawal of refined sugar from its premises without the
advance payment of VAT and submission of proof of such payment, except when the refined
sugar is owned and withdrawn by the cooperative, in which case the evidence of ownership,
Authorization Allowing the Release and Sworn Statements provided in these Regulations must
be presented.
The Regional Director, upon the recommendation of the RDO of the district having jurisdiction
over the physical location of the sugar mill/refinery, may direct an internal revenue officer to be
present during the withdrawal of refined sugar from the premises of the sugar mill/refinery in
order to confirm and/or verify that the requirements of this Section are complied with.

c. Basis for Determining the Amount of Advance VAT Payment. –

i. Base Price. - The amount of advance VAT payment shall be determined by applying
VAT rate of 10% on the applicable base price of P850.00 per 50 kg. bag for refined sugar
produced by a sugar refinery, and P 760.00 per 50 kg. bag for refined sugar produced by a
sugar mill.
Base Price. – The amount of advance VAT payment shall be determined by applying VAT
rate of 12% on the applicable base price of P850.00 per 50 kg. bag for refined sugar
produced by a sugar refinery, and P760.00 per 50 kg. bag for refined sugar produced by a
sugar mill. (RR 4-2007)
ii. Subsequent Base Price Adjustments. – The base price upon which the advance payment
of VAT will be computed under the preceding paragraph shall be adjusted when deemed
necessary by the Commissioner of Internal Revenue, upon consultation with the Chairman
of the Sugar Regulatory Administration.

d. Proof of Advance Payment. – The RDO concerned or the duly constituted unit in its place
such as the Regional Task Force on Sugar, as the Regional Director may decide, shall issue a
Certificate of Advance Payment of VAT. This certificate shall serve as the authority of the sugar
mill/refinery to release the refined sugar described therein, and together with the payment form
(BIR Form No. 0605 or its equivalent) and the BIR-prescribed deposit slip duly validated by the
AAB, or the Revenue Official Receipt (ROR) issued by the RCO or the duly authorized City or
Municipal Treasurer, as the case may be, shall serve as proof of the payment for the advance
VAT which can be credited against VAT liability/payable in VAT return/s to be filed.

e. Proof of exemption from the advance payment. – If a duly-registered agricultural cooperative

claims ownership of refined sugar stocked in the sugar mill/refinery, the latter shall not release
the said refined sugar unless an Authorization Allowing the Release of Refined Sugar is first
secured from the RDO or any duly constituted unit in its place such as the Regional Task Force
on Sugar created by the Regional Director as the latter may decide, of the BIR office having
jurisdiction over the physical location of the sugar mill/refinery. In securing such authorization,
the cooperative shall, in addition to that of satisfying VAT-exemption requirements under RR
No. 20-2001, submit to the RDO or Regional Task Force concerned a Sworn Statement to the
effect that-
(1) The sugar has not been bid, sold or otherwise transferred in ownership, at anytime prior
to the removal from the refinery, to a trader or another entity; and
(2) The refined sugar is the property of the cooperative at the time of removal and it will
not charge advance VAT or any other tax to the future buyer.
If the cooperative invokes ownership over the sugar cane and the milled/refined sugar, the sugar
quedans must be in the name of the cooperative.
In the event the refined sugar is owned and/or withdrawn from the mill/refinery by a duly
accredited and registered agricultural cooperative of good standing and said cooperative
presents the “Authorization Allowing the Release of Refined Sugar”, the mill/refinery shall
release the same but only after notifying the RDO or the assigned duty officer with jurisdiction

53
 over the mill of the time and date of the release from the mill and the names and plate numbers
of the carrying trucks so that the release can be given proper supervision and that advance VAT
is collected from the transferee/buyer/customer should evidence show that the refined sugar has
already been sold by the cooperative.

f. Information Returns to be Filed by the Proprietor or Operator of a Sugar Refinery and

Cooperatives.
Every proprietor or operator of a sugar refinery or mill with production line accredited by the
BIR to be capable of producing sugar with a polarimeter reading of 99.5o or above, or mill
producing sugar with polarimeter reading of 99.5o or above shall render an Information Return
to the RDO having jurisdiction over the physical location of the said sugar refinery/mill which
issues the Certificate of Advance Payment of VAT or Authorization Allowing the Release of
Refined Sugar not later than the 10th day following the end of the month. The aforesaid
Information Return shall reflect the following information:
i. Name, TIN and RDO number of the Owner of the Refined Sugar;
ii. Number of bags of refined sugar released;
iii. Amount of Advance VAT Paid.
Likewise, every cooperative shall submit to RDO where it is registered a List of Buyers of Sugar
together with a copy of the Certificate of Advance Payment of VAT, made by each of the
respective buyer appearing in the list, not later than the 10th day following the end of the month
with the following information:
i. Name, address, TIN and RDO No. of the Buyer;
ii. Number of bags of refined sugar sold/LKG;
iii. Amount of sales.
iv. Amount of Advance VAT paid by the buyer.
2. Sale of Flour. --
a. Requirement to Pay in Advance VAT on Sale of Flour and Time of Payment of Advance
VAT. –
i.release from the Bureau of Custom’s custody of the wheat, which is imported and declared
for flour milling.
VAT on the sale of flour milled from imported wheat shall be paid prior to the
ii. Purchases by flour millers of imported wheat from traders shall also be subjected to
advance VAT and shall be paid by the flour miller prior to delivery.

b. Prohibition of Withdrawal of Shipment Before Payment of Advance VAT.-

Withdrawal, either partial or full of imported wheat to be used in the milling of flour from
custom’s custody shall not be allowed prior to payment of the Advance VAT and submission of
documentary proof of payment such as the Authority to Release Imported Goods (ATRIG)
issued by the BIR and the BIR Payment Form No. 0605 together with the deposit slip issued by
the AAB or the ROR issued by the RCO in the absence of an AAB.
Importation of wheat by any trader shall still be exempt from the payment of VAT. However,
in order to monitor all importation of wheat regardless of its intended use, the importer, whether
miller or trader, shall be required to secure ATRIG from the BIR.
The BOC will require the submission of the ATRIG by the importer before releasing the
imported wheat from its custody. For this purpose, importation of wheat shall be treated as an
exception to the list of imported articles exempted from the issuance of ATRIG as contained in
the BIR-BOC Joint Memorandum Circular No. 1-2002 dated September 16, 2002.

c. Securing the ATRIG and the Payment Form of the Advance VAT. –
To afford expediency and to minimize delay in the processing of ATRIG, the flour miller shall
compute the Advance VAT payable and fill up the Payment Form Order (BIR Form No. 0605).
The flour miller shall pay the amount indicated in the Payment Order to the AAB of the
LTS/Large Taxpayers District Office (LTDO)/RDO where the flour miller is registered. In the

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 absence of an AAB in the RDO where the flour miller is registered, the payment shall be made
to the RCO of said district.
Upon payment, the flour miller will then present a copy of the duly validated payment form to
the RDO having jurisdiction over the port of entry. Upon receipt of the properly validated and
stamped Payment Order, the RDO having jurisdiction over the port of entry shall issue the
ATRIG covering the importation of wheat by the flour miller in accordance with Revenue
Memorandum Order No. 35-2002, which prescribes the guidelines for the issuance of ATRIG
for Excise and VAT purposes.
For purchases of wheat from traders, the flour miller shall be required to present proof of
payment of advance VAT to the trader prior to delivery or withdrawal of wheat from the latter’s
premises.

d. Basis for Determining the Amount of Advance VAT Payment. –

i. Determination of advance VAT. – The amount of advance VAT payment shall be
determined by applying VAT rate of 10% on the tax base.
Determination of advance VAT. – The amount of advance VAT payment shall be
determined by applying VAT rate of 12% on the tax base. (RR 4-2007)
ii. Tax Base – Considering that in the course of the milling process, not all wheat is turned
into flour, the tax base shall be as follows:
For wheat imported by the flour millers – 75% of the sum of: (a) the invoice value
multiplied by the currency exchange rate on the date of payment; (b) estimated customs
duties and other charges prior to the release of the imported wheat from customs custody,
except for the advance VAT; and (c) Five percent (5%) on the sum of (a) and (b).
iii. Subsequent tax base adjustments – The tax base shall be adjusted whenever deemed
necessary by the Commissioner of Internal Revenue, after proper prior consultations with
the flour milling industry associations and upon approval by the Secretary of Finance.

e. Credit for Advance VAT Payments – The amount of advance VAT payments made by the
flour miller shall be allowed as tax credit against VAT liability/payable of the flour miller. The
Payment Order, together with the deposit slip issued by the AAB or the ROR issued by the RCO,
shall serve as proof for the credit of such advance payment.
f. Reporting Requirements – All importers of wheat regardless of use, whether miller or trader,
shall submit quarterly summary list of sales, purchases and importations.

(C) Short Period Return

Any person who retires from business with due notice to the BIR office where the taxpayer (head
office) is registered or whose VAT registration has been cancelled shall file a final quarterly return
and pay the tax due thereon within twenty five (25) days from the end of the month when the
business ceases to operate or when VAT registration has been officially cancelled; Provided,
however, that subsequent monthly declarations/quarterly returns are still required to be filed if the
results of the winding up of the affairs/business of the taxpayer reveal taxable transactions. All
persons first registered under Secs. 9.236-1 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 the taxable quarter, initial monthly VAT declaration shall be filed within twenty (20) days
after the end of the month, and the initial quarterly return shall be filed on or before the 25th day
after the end of the taxable quarter. On the other hand, if the effective date of registration falls on
the third month of the taxable quarter the quarterly returns shall be filed on or before the 25th day
of the month following the end of the taxable quarter, and no monthly VAT declaration need be
filed for the initial quarter.

(D) Where to File and Pay

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 The monthly VAT declaration and quarterly return shall be filed with, and VAT due thereon paid
to, an AAB under the jurisdiction of the Revenue District/BIR Office where the taxpayer (head
office of the business establishment) is 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 RDO, Collection Agent or duly authorized Treasurer of the Municipality/City where such
taxpayer (head office of the business establishment) is required to be registered.
The quarterly VAT return and the monthly VAT declaration, where no payment is involved, shall
be filed with the RDO/LTDO/Large Taxpayers Assistance Division (LTAD), Collection Agent,
duly authorized Municipal/City Treasurer of Municipality/City where the taxpayer (head office of
the business establishment) is registered or required to be registered.”
Taxpayers filing via EFPS shall comply with the provisions of the EFPS Regulations.
Only one consolidated quarterly VAT return or monthly VAT declaration covering the results of
operation of the head office as well as the branches for all lines of business subject to VAT shall
be filed by the taxpayer, for every return period, with the BIR office where said taxpayer is required
to be registered.

Royalties 104-98 Dae Ryung Ind (PH) remits royalties to its non-resident foreign licensor. CIR:
tax exempt from all direct and indirect taxes because of the preferential 5% in lieu of all local taxes.
Dae Ryung’s royalty payments are exempt from the value-added tax, and shall also be exempt from
the obligation to withhold and remit the 10% VAT on its payments and remittances of royalties
pursuant to Section 110 of NIRC.

Professional Services 88-250 Company was engaged in management services and thus hold several
key positions in the managed companies under the control of their respective BoDs. It sought
exemption from paying VAT. CIR: Liable, because it was engaged in the sale of services. The
phrase "sale of service" means performance of all kinds of services for others for a fee regardless
of whether or not the performance thereof calls for the exercise or use of the physical or mental
faculties. Additionally, the commissioner ruled that the company does not fall under the purview
of the exemption from VAT services performed in the exercise of profession or calling subject to
the occupation tax under the Local Tax Code and professional services performed by a registered
general professional partnership. This is so because the company’s management services are not
subject to the occupation tax under the Local Tax Code and that the company is a corporation and
not a partnership.

VAT Exempt cooperatives 122-98 PHILPROCOM (a cooperative in good standing) bought a

backhoe for digging and preparing drainage irrigation of farms and plantation. It sought VAT
exemption. CIR: EXEMPT, according to the Tax Code sales by agricultural cooperatives duly
registered with the Cooperative Development Authority to their members as well as sale of their
produce, whether in its original state or processed form, to non-members; their importation of direct
farm inputs, machineries and equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce ARE EXEMPT.

Dwelling below 1.0M 152-98 Sale by real estates dealers and/or lessors of house and lot and other
residential dwellings valued at One Million Pesos (P1,000,000.00) and below shall be exempt from
VAT. 1

Treatment of VAT exempt transactions, supplies passed on to VAT exempt

Lease of Dormitory spaces VAT Ruling 037-01 EOI is in the business of leasing out stalls and
office spaces and operates a residential dormitory. CIR: exempt from VAT because the monthly
rental from each individual does not exceed 8k (regardless of aggregate in a year)

1 See Sec. 109 and RRs above for updated value.

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VAT/Percentage tax on tiangge RR No. 16-2003 Digest: A fixed amount of VAT or Percentage
Tax, as the case may be, of P 150 per day (or P 4,500 per month) and Income Tax of P 50 per day
(or P 1,500 per month), shall be imposed and collected in advance on a monthly basis from
“privilege store” operators during the entire duration of their business operations. Provided,
however, that if the duration of operation of the privilege store is less than one month, then the
advance payment shall cover only said lesser period. Said advance payments shall be credited
against the actual business tax and income tax due from such persons for the taxable period for
which such payments were remitted to the Bureau.

On the part of the organizers or exhibitors, their obligations shall cover the following: 1) deduction
and withholding of the 5% Expanded Withholding Tax on lease payments to the lessor of real
property; 2) posting in a conspicuous place of their Certificate of Registration (COR) issued by the
BIR; 3) providing the Revenue District Office (RDO) with the list of names, Taxpayer
Identification Numbers and CORs of persons/entities participating in the event and the specific
dates and duration when such operations shall be conducted; 4) ensuring registration with the BIR
as well as the remittance of actual withholding tax liabilities and advance tax payments by the
“privilege store” operators; and 5) reporting to the BIR of non-compliance by the “privilege store”
operators with their obligations and responsibilities.

In addition to their obligation to pay advance business tax and income tax, “privilege store”
operators are also required to deduct and withhold the 5% Expanded Withholding Tax on rental
payments made to exhibitor/organizer for sub-leased spaces.

Power of Commissioner to suspend business operations RR 16-2005 Sec. 4.115-1

SEC. 4.115-1. Administrative and Penal Provisions. --

(a) Suspension of business operations. – In addition to other administrative NO
and penal sanctions provided for in the Tax Code and implementing AMENDMENT
regulations, the Commissioner of Internal Revenue or his duly authorized
representative may order 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 VAT return as required under the provisions of Sec.
114 of the Tax Code.
(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. 236 of the Tax Code.
(b) Surcharge, interest and other penalties. – The interest on unpaid amount
of tax, civil penalties and criminal penalties imposed in Title XI of the Tax
Code shall also apply to violations of the provisions of Title IV of the Tax
Code.

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 SEC. 110. Tax Credits
SEC. 110. Tax Credits. — (A) Creditable Input Tax. —
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113
hereof on the following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a finished product for sale including packaging
materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for depreciation or amortization is allowed
under this Code.
(b) Purchase of services on which a value-added tax has been actually paid.

(2) The input tax on domestic purchase or importation of goods or properties by a VAT- registered person
shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods
or properties; and
(b) To the importer upon payment of the value-added tax prior to the release of the goods from
the custody of the Bureau of Customs.
Provided, that the input tax on goods purchased or imported in a calendar month for use in trade or business
for which deduction for depreciation is allowed under this Code shall be spread evenly over the a month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds One million pesos (P 1, 000, 000): Provided, however,
That if the estimated useful life of the capital good is less than five (5) years, as used for depreciation
purposes, then the input VAT shall be spread over such a shorter period: Provided, further, That the
amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers with
unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as
scheduled until fully utilized: Provided, finally, that in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or free.

(3) A VAT-registered person who is also engaged in transactions not subject to the value- added tax shall
be allowed tax credit as follows:
(a) Total input tax which can be directly attributed to transactions subject to value-added tax; and
(b) A ratable portion of any input tax which cannot be directly attributed to either activity.
The term "input tax" means the value-added tax due from or paid by a VAT-registered person in
the course of his trade or business on importation of goods or local purchase of goods or services,
including lease or use of property, from a VAT-registered person. It shall also include the
transitional input tax determined in accordance with Section 111 of this Code.
The term "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 236 of this Code.

(B) Excess Output or Input Tax. — 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. If the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters. Provided, however, That any input tax
attributable to zerorated sales by a VAT-registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.

(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

58
month or quarter shall be reduced by the amount of claim for refund or tax credit for value-added tax 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 other government agencies, such as the Board of
Investments and the Bureau of Customs.

SEC. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-rated or Effectively Zero-rated Sales. — Any VAT-registered person, whose sales are zero-rated
or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),
(2) and (b) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale
and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales. Provided, finally, That for a person making sales that
are zero-rated under Section 108(B) (6), the input taxes shall be allocated ratably between his zero-rated
and non-zero-rated sales.

(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 106(C) of this 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 may be used in payment of his other internal revenue taxes.

(C) Period within which Refund of Input Taxes shall be Made-- In proper cases, the Commissioner shall
grant a refund for creditable input taxes within ninety (90) days from the date of submission of the official
receipts or invoices and other documents in support of the application filed in accordance with Subsections
(A) and (B) hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the
Commissioner must state in writing the legal and factual basis for the denial.

In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals:
Provided, however, That failure on the part of any official, agent, or employee of the BIR to act on the
application within the ninety (90) day period shall be punishable under Section 269 of this Code.

(D) Manner of Giving Refund. — Refunds 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, the provisions of the Administrative Code of 1987 to the contrary notwithstanding:
Provided, That refunds under this paragraph shall be subject to post audit by the Commission on Audit.

SEC. 114. Return and Payment of Value-Added Tax. —

(A) In General. — Every person liable to pay the value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close
of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall
pay the value-added tax on a monthly basis: Provided, finally, That beginning January 1, 2023, the filing
and payment required under this Subsection shall be done within twenty-five (25) days following the close
of each taxable quarter.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and
pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided,

59
That only one consolidated return shall be filed by the taxpayer for his principal place of business or head
office and all branches.

(B) Where to File the Return and Pay the Tax. — Except as the Commissioner otherwise permits, the return
shall be filed with and the tax paid to an authorized agent bank, Revenue Collection Officer or duly
authorized city or municipal Treasurer in the Philippines located within the revenue district where the
taxpayer is registered or required to register.

(C) Withholding of Value-added Tax. — 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 each purchase of goods and services which are are subject to the
value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value- added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of
five percent (5%) of the gross payment thereof: Provided, That beginning January 1, 2021m the VAT
withholding system under this Subsection shall shift from final to creditable system: Provided, further, That
the payment for lease or use of properties or property rights to nonresident owners shall be subject to twelve
percent (12%) withholding tax at the time of payment: Provided, finally, That payments for purchases of
goods and services arising from projects funded by Official Development Assistance (ODA) as defined
under Republic Act No. 8182, otherwise known as the “Official Development Assistance Act of 1996,” as
amended, shall not be subject to the final withholding tax system as imposed in this Subsection. For
purposes of this Section, the payor or person in control of the payment shall be considered as the
withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) days following the end
of the month the withholding was made.

Sec. 116. Tax on Persons Exempt from VAT – Any person whose sales or receipts are exempt under
Section 109 (BB) of this Code from the payment of value-added tax and
who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly
sales or receipts: Provided, That cooperatives and beginning January 1, 2019, self-employed and
professionals with total annual gross sales and/or gross receipts not exceeding five hundred thousand pesos
(500,000) shall be exempt from the three percent (3%) gross receipts tax herein imposed.

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