VALUE ADDED TAX

ON IMPORTATION
LIFTED FROM BUSINESS AND TRANSFER TAXATION BY REX
BANGGAWAN
What is IMPORTATION?
Importation refers to the purchase of goods
including services by Philippine residents from
non – resident sellers. Importation is a form of
domestic consumption, hence, subject to
consumption tax.
Types of Consumption Tax on
Importation
1. The consumption tax on the import of goods
is called “VAT on Importation”.
2. The consumption tax on the purchase of
services from non – residents is called
‘”Withholding VAT”.
The VAT on Importation is payable to the Bureau of
Custom whenever there is importation of goods. The
VAT is paid prior to the withdrawal of the goods from
the Customs warehouse.

The Withholding VAT is 12% of the payment for services

rendered by non – residents.

In both cases, the resident purchaser is the one statutory liable for the payment
of the VAT.
EXEMPT CONSUMPTIONS
VAT should not apply to goods, properties, or
services considered as basic necessities. Neither
should VAT impedes policies nor hinder
developments by being imposed on goods and
services considered as priorities. Hence, the law
exempts certain goods and services from VAT.
EXEMPT IMPORTATIONS
1. Importation of agricultural and marine food products in their original state.
2. Importation of fertilizers, seeds, seedlings, and fingerlings, fish, prawn, livestock, and poultry
feeds, including ingredients used in the manufacture of finished feeds.
3. 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.
4. Importation of professional instruments and implements, wearing apparel, domestic animals,
and personal household effects belonging to persons coming to settle in the Philippines, for
their own use and not for sale, barter, or exchange.
5. Importation of books and any newspaper, magazine, review, or bulletin which appear at
regular intervals with fixed process for subscription and sale and which is not devoted principally
to the publication of paid advertisements.
EXEMPT IMPORTATIONS
6. Importation or lease of passenger or cargo vessels and aircraft, including engine, equipment
and spare parts thereof for domestic or international transport operation.
7. Importation of capital equipment, machinery, spare parts, life – saving and navigational
equipment, steel plates and other metal plates including marine – grade aluminum plates to be
used in the construction, repair, renovation or alteration of any merchant marine vessel
operated or to be operated in domestic trade.
8. Importation of life – saving equipment, safety and rescue equipment and communication and
navigational safety equipment, steel plates and other metal plates, including marine – grade
aluminum plates, used for shipping transport operations.
9. Importation of fuel, goods, and supplies by persons engaged in international shipping or air
transport operations.
EXEMPT IMPORTATIONS
10. Importation of cooperatives 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.
11. Transactions which are exempt under international agreement to which the Philippines is a
signatory.
12. Importation exempt under special laws.
EXEMPT IMPORTATIONS FOR
HUMAN CONSUMPTION
1. Agricultural or marine food products in original
state
2. Livestock and poultry of a kind generally used as,
or yielding or producing foods for human
consumption
3. Breeding stock and genetic materials therefore
1.) Agricultural or Marine Food
Products in Original State
Agricultural or marine food products are natural objects
of human consumptions. Taxing these would tend to
limit the normal processes of life. The importation of
these goods is exempted from the VAT on Importation.
It must be emphasized that the exemption is limited to
agricultural or marine food products in their original
state.
Examples of Exempt Agricultural and
Marine Food Products
1. Grapes, apples, oranges, and other fruits
2. Vegetables, tea, ginseng
3. Rice, corn, coffee beans and other edible farm products
4. Marine foods such as fish and crustaceans
5. Poultry and livestock
6. Milk, eggs, meat for human consumption
Examples of Non – Food Agricultural or Marine
Products NOT Exempt from VAT on Importation
A. Logs, wood, bamboos, orchids, and similar forest
products
B. Rubber hem, abaca, tobacco, topical herbs, cotton and
other non – food crops
C. Shells, corals, and other non – food marine products
usually used as ornaments
D. Race horse, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets
Meaning of “in original state”
The term “in original state” means unprocessed. However,
an agricultural or marine food product is still considered in
its original state and unprocessed even if it undergone
simple process of:
a. preparation for the market
b. preservation, or
c. packaging, including advanced technological means of
packaging
Examples of Acts of Preparation:
A. Boiling
B. Broiling
C. Husking
D. Roasting
E. Stripping
F. Grinding
Examples of Acts of Preservation:
A. Freezing
B. Drying
C. Salting
D. Smoking
Examples of Advanced Technological
Means of Packaging
A. Shrink wrapping in plastics
B. Vacuum Packing
C. Tetra – packing
D. Other similar packing methods

It is to be noted that these methods do not alter the nature

of agricultural or marine food products being in “original
state”
Examples of Agricultural or Marine Food
Products Considered in their Original State
A. Husked Rice F. Copra
B. Corn Grits G. Dried Fish
C. Raw Cane Sugar H. Sundried Fruits
D. Roasted Coffee BeansI. Ground Meat
E. Ordinary Salt J. Smoked Fish
Processed Agricultural or Marine
Food Products
Processed agricultural or marine food
products pertain to those which have
undergone changes in their chemical
compositions or have undergone complex
processing or treatment.
EXAMPLES
A. Refined Sugar
B. Wine or Vinegar
C. Butter
D. Canned sardines or mackerel
E. vegetable or coconut oil
F. Soy
 ILLUSTRATION 1
Hardy Corporation imported the following goods:

Lumber P500,000
Canned Tuna 800,000
Frozen Meat 700,000
Wheat 200,000
Flour 100,000

How much is the total exempt and total vatable importation?

SOLUTION 1
Total Exempt Importation: (700,000 + 200,000) P900,000
Total Vatable Importation: (500,000+800,000+100,000) P1,400,000

The importation of frozen meat and wheat is exempt. The

importation of non – food agricultural products like lumber
and the importation of processed agricultural or marine
food products like canned tuna, sardines, and flour are
subject to VAT on importation.
IMPORTATION OF EXEMPT MARINE
OR AGRICULTURAL INPUTS
Marine or Agricultural inputs intended for the production of marine
or agricultural food products which are ultimately for human
consumption are likewise exempt.
The importation of fertilizers, seeds, seedlings, fingerlings, fish,
prawn, livestock, and poultry feeds, including ingredients used in the
manufacture of finished feeds are exempt since they are ultimately
intended for the production of food products for human
consumption. However, the importation of specialty feeds (i.e. pet
feeds) is taxable since pets are not intended for ultimate human
consumption.
Illustration 2
Simaron Company imported the following agricultural implements:

Urea Fertilizer P800,000

Cargil corn seeds 400,000
Pesticides 600,000
Herbicides 800,000

What is the total exempt importation?

Solution 2
Total exempt importation is equal to 1,200,000. The fertilizer and
seeds are exempt. Note that the exemption is limited to seeds,
seedlings, and fertilizers. Other farming ingredients such as
pesticides and herbicides are subject to VAT on importation.

Note also that exemption covers only those farm and fishery inputs
enumerated by law. The importation of farm, fishery, or fishing
equipment such as fishing boats, tractors, plow, threshers and
harvesters is subject to VAT on importation.
 RULES ON VAT TAXATION OF
POULTRY AND FEEDS
Livestock Poultry Pets
Importation of X X ✔
Importation of feeds for X X ✔
Importation of feed X X ✔
ingredients for
IMPORTATION OF PERSONAL
AND HOUSEHOLD EFFECTS
Conditions for exemption:
1.) The personal and household effects belong
to Philippine residents or non – residents
intending to resettle in the Philippines
2.) The goods are exempt from Custom Duties
The importation of personal effects, household effects including
professional instruments and implements by residents returning
from abroad is not subject to the VAT because these are past
consumptions which are previously subjected to consumption tax
herein.

The importation of personal or household effects or professional

implements by non – residents intending to resettle in the
Philippines is a foreign consumption not subject to Philippine
consumption tax.
Illustration 3
Mr. Siman was employed abroad as an OFW. He went
abroad bringing with him personal effects such as clothes,
pieces of personal jewelry and gadgets aggregating
P300,000 in value. When his contract ended, he returned to
the Philippines bringing with him the same effects which
now have aggregated value of P280,000.

Is this subject to VAT on Importation?

SOLUTION 3
The importation (i.e. return) of the
personal effects will not be subject to VAT
since these are past purchases which are
previously subjected to consumption tax
when purchased in the Philippines.
Illustration 4
While employed abroad, Mr. Siman
purchased an iPhone 11 worth P45,000 for
selfie purposes. Mr. Siman brought the
iPhone to the Philippines when his
employment contract ended.
Is this subject to VAT on importation?
Solution 4
The importation of the iPhone shall not be subject to
VAT on importation for the same reason that it is not
a present consumption of household effects when it
was brought into the Philippines. Furthermore,
purchases abroad by non – residents are not subject
to consumption tax in the Philippines. Their
subsequent importation to the Philippines is exempt
from VAT on importation.
Illustration 5
Mr. Budang, a Philippine resident, purchased
used clothing and shoes abroad to be sold in
her “YE’S Budang Clothing” sales outlet in the
Philippines.

Is this importation subject to VAT?

Solution 5
The purchase by Philippine residents of goods
from abroad is a domestic consumption. This is
subject to the VAT on importation. This rule
applies without regard to the purpose of the
importation whether for business or for
personal use.
Illustration 6
Ms. Lovely Bulalo, a non – resident Filipino
businesswoman, owns a machine in her business in
France. She de – commissioned the machine to be
transferred to her business in the Philippines.

Is this subject to VAT on importation?

Solution 6
Although the machine is a past consumption by
a non – resident person, the importation of the
same to the Philippines is subject to VAT
because the exemption is limited only to
personal, professional, or household effects.
Importation of Professional Instruments and Implements,
Wearing Apparel, Domestic Animal, and Personal
Household Effects
Conditions for exemptions:

1. The goods belong to persons who come to settle in the Philippines.

2. The goods must accompany the person upon arrival or within 90 days before
and after their arrival.
3. There must be evidence to show that the change of residence is bonafide.
4. The importation is not a vehicle, machinery or other equipment used in the
manufacture or merchandise of any kind of commercial quantity.
 Illustration 7
Mr. Kung Fu, a Chinese martial art master, arrived in the Philippines with an immigration visa. He
brings with him the following which he declared as his personal effects:
10 pcs of brand new iPhone 11 150,000 each
10 pcs of brand new IBM laptops 80,000 each
5 desktop computers 40,000 each
1 piece of used laptop 30,000
1 piece of used iPhone 6 20,000
1 piece of used calculator 400
Used clothes, apparels, and travelling bag 7,000

Which are considered as personal effects and consequently not subject to

VAT on importation?
Solution 7
The used laptop, iPhone 6, calculator, clothes, and apparels
are apparently personal effects which are past
consumptions; hence, exempt from VAT.

The nature and quantity of the iPhone 11, IBM laptops, and
desktop computers are clearly inconsistent with the concept
of personal effects. These items are brought in for domestic
consumption; hence subject to VAT.
Illustration 8
While in Dubai, Mrs. Waca bought a car and various
pieces of jewelry from her salaries as OFW. She
intended to sell the jewelry to her friends and town
folks in the Philippines. When her contract ended,
Mrs. Waca brought the car and the jewelry into the
Philippines.
Are these items VATABLE?
Solution 8
The importation of the car is vatable under the
rule. The pieces of jewelry are imported for sale
and are not personal effects, hence, vatable.
Importation of Books, Newspapers,
Magazine, Review or Bulletins
The exemption of these materials is apparently based upon
the necessity of education and information. The Philippine
Constitution requires the state to give priority to education
to foster patriotism and nationalism, accelerate social
progress, and promote total human liberation and
development. The Philippine Constitution also recognizes
the vital role of communication and information in nation
building.
Conditions for Exemption of
Newspaper, Magazine Review or
Bulletin:
1.) Must appear at regular intervals with
fixed prices for subscription.
2.) The sale must not be devoted
principally to the publication of paid
advertisements.
Importation or Lease of Vessels and Aircraft,
Including Engine, Equipment and Spare parts thereof
The importation and lease of these items from
non – residents whether for domestic or
international transport is exempt from VAT. The
apparent basis is our shortage of these
transport vehicles. Difficulties in air or sea
transport could impede national development.
Conditions for Exemption:
1.) For passenger or cargo vessels, only those 150 tons and
above, including engine and spareparts, are exempt.
2.) The vessel to be imported must comply with age limit
requirement at the time of acquisition counted from the
date of the vessel’s original commissioning:
Passenger or Cargo Vessels – 15 years
Tankers – 10 years
High speed passenger aircraft – 5 years
Illustration 9
Total Transport Group has land, sea, and air transport operations. To
beef – up its operations, the group decided to import the following
vehicles:
A.) 5 units of Daewoo bus
B.) 1 airplane
C.) 2 ships

Which importation is/are subject to VAT?

Solution 9
The importation of the airplane and ships are
exempt; however, the importation of the buses for
land transport is subject to VAT.
Illustration 10
Aklan Superferries leased a 500 – ton ship from a non
– resident foreign lessor to beef up its domestic fleet
of passenger ships. It pays 10,000,000 annual rent on
the ship.

Is this lease subject to VAT on importation?

Solution 10
The rental payments shall not be
subject to VAT on importation of
services (Withholding VAT) since the
lease of vessels is exempt under the
above conditions.
Life – Saving Safety and Rescue Equipment for Shipping,
Transport Operations, and Equipment, Machinery, Spare
parts, Steel or Other Metal Plates to be Used in Any
Merchant Marine Vessel for Domestic Trade
The importation of these items is exempted under RA
9295 in recognition of shipping as necessary
infrastructure vital to the economic development of
our country. Considering that the Philippines is
studded with islands, a strong, competitive domestic
merchant fleets is a real necessity to bridge our
islands.
Importation of Fuel, Goods, and Supplies by Persons
Engaged in International Shipping or Air Transport
Operations
Although the fuels, goods and supplies are
imported into the Philippines, these are not
intended to be consumed in the Philippines by
these international carriers. These are destined
for consumption abroad, hence, exempt from
VAT under the destination principle.
Illustration 11
Malaysian Ferries is an international shipping carrier
with shipping routes from the Philippines and other
foreign countries. It imported to the Philippines fuels
and supplies to be used in its shipping operations.

Is this transaction subject to VAT?

Solution 11
Note that fuels, goods or supplies will be
consumed in the high seas or in foreign
territories outside the country. The importation
is not a domestic consumption but a foreign
consumption; hence; exempt from VAT.
Illustration 12
Cebu Pacific imported fuel jet from Iraq at a total
cost of 50,000,000. 40% of the importation shall be
used for domestic airline operations while 60% shall
be used for international air transport operations.

What is the total amount subject to VAT on

importation?
Solution 12
60% of the 50,000,000 importation will be
consumed in foreign air spaces. This is not
domestic consumption; hence, exempt
from VAT. Only the 40% portion which will
be used domestically will be subjected to
VAT on importation.
Importation of Cooperatives of Direct Farm
Inputs, Machineries and Equipment, Including
their Spare Parts
Conditions for exemption:
1. The cooperative must be an agricultural cooperative duly
registered and in good standing with the Cooperative
Development Authority (CDA).
2. The importation involves direct farm inputs, machineries,
equipment, and their spare parts to be used directly and
exclusively in the production or processing of their produce.
 Illustration 13
Pampanga Farmer’s Cooperative imported the following equipment:

Tractors and threshers to be used by the Cooperative 2,000,000

Plows and water pumps to be resold to members 3,000,000
Fertilizers and hybrid seeds to be sold by the Cooperative 1,000,000
Herbicides and Pesticides to be used by the Cooperative 500,000
Cars for the use of Cooperative directors and officers 2,000,000

Classify each importation as either Vatable or Exempt

 Solution 13
Tractors and threshers to be used by the Cooperative Exempt

Plows and water pumps to be resold to members Vatable

Fertilizers and hybrid seeds to be sold by the Cooperative Exempt

Herbicides and Pesticides to be used by the Cooperative Exempt

Cars for the use of Cooperative directors and officers Vatable

Illustration 14
Guagua Credit Cooperative imported a
computer server from abroad at a cost of
1,500,000. How much is the VAT on
importation?
Solution 14
This importation will be subject to VAT on
importation since the exemption does not extend to
cooperatives which are not engaged in the processing
or production.
Illustration 15
A Mining Cooperative imported an ozone generator
and an ultrafine ore grinding machine for its gold
recovery plant.

Is this subject to VAT on importation?

Solution 15
The importation is exempt from VAT because
the same are used in the processing of the
cooperative on its produce.
Presumption of Vatability
Importation is generally subject to VAT unless it
can be proven as exempt under any of those
conditions discussed herein or under a provision
of a special law or treaty. The burden of proof
and establishing VAT exemption rests upon the
taxpayer.
SUBSEQUENT SALE BY EXEMPT
PERSONS TO NON – EXEMPT
PERSONS
When an exempt importer subsequently sells his exempt
importation to a non – exempt person, the non – exempt buyer
shall be subject to VAT on 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.

This Rule Applies to Qualified Exempt Importation of Exempt

Persons.
Example of Qualified Exempt
Importation:
A. Importation of direct farm inputs, machineries, and
equipment by agricultural cooperatives
B. Importation of fuel, goods or supplies by a person
engaged in international transport operations.
C. Importation of passenger or cargo vessels and aircrafts by
a person engaged in domestic or international transport
operations.
Illustration 16
Arado Coop, a farming cooperative, imported 10
tractors with acquisition cost of 180,000 each.
Subsequently, Arado Coop sold four tractors to Mr.
Laco, a farmer.

Is this transaction vatable?

Solution 16
Arado Coop is exempt from VAT on importation of farm
equipment. The transfer by Arado Coop of its exempt
importation to Mr. Laco, a non – exempt person, shall be
subject ot VAT. The VAT however, shall not be imposed upon
the sales of Arado Coop. Mr. Laco should be treated as the
importer of the four tractors and will therefore pay the
required VAT on importation.
Illustration 17
An international air carrier imported jet fuel at a total
cost of 40,000,000. It subsequently sold 10,000,000
of these to a domestic air carrier.

Is this transaction subject to VAT on importation?

Solution 17
Since a domestic carrier is not exempt from
importation of fuel, it should be treated as the
importer of the 10,000,000 fuel it purchased from
the international carrier. The international carrier is
not required to pass the VAT on its sales of the fuel.
Illustration 18
A cooperative imported frozen meat from China. It
subsequently sold all of this to Philippine consumers.

Will the VAT on importation be passed to the

Philippine consumers?
Solution 18
The importation of frozen meat, an agricultural
product in original state, is an exempt importation for
any importer. Hence, the sale by the cooperative to
the consumers (i.e. final consumption) shall not be
subject to VAT. Likewise, the buyers shall not be
subject to VAT on importation.
The rule does not apply to exempt
importation of exempt goods. Exempt
goods are exempt from consumption tax.
They are not subject to VAT on importation
and on sale.
VAT on Importation
Since the object of taxation is the consumption, the importation of
goods is subject to VAT regardless of whether the:
1.) Importer is engaged in or not engaged in trade or business
2.) Importer is a VAT or non – VAT business
3.) Importation is for business or personal news
4.) Non – resident seller is engaged or not engaged in business
TAX Basis of VAT on Importation
The VAT on importation is computed as
12% of the total landed cost of the
importation, other than those listed as
exempt importations.
Composition of Landed Cost
1.) Dutiable value
2.) Customs Duty
3.) Excise tax, if any
4.) Other in – land costs, such as:
◦ A. Bank Charge
B. Brokerage Fee
C. Arrastre Charge
D. Wharfage Due
E. Customs Documentary Tax
F. Import Processing Fee
Simply stated, landed costs encompass all
costs of importation incurred prior to the
withdrawal of the goods from the
warehouse of the Bureau of Customs,
except unofficial or illegal payments made.
The dutiable value refers to the total value used by the Bureau of
Customs in determining the tariff and customs duties such as the
following:
1. Cost of the goods
2. Freight
3. Insurance
4. Other charges and costs
The dutiable value encompasses all costs incurred in bringing the
goods up to Philippine port and prior to any other in – land costs of
import.
The customs duty is computed as Dutiable value x Exchange rate x
Rate of Duty
Illustration 19: Basic
GNC Trading Corporation imported goods from abroad for domestic sale. Shown below is the
detail of the importation:
Peso value of supplier’s invoice 2,000,000
Other costs incurred to bring goods to Philippine port 70,000
Other charges before withdrawal of goods, including
5,000 facilitation fee paid to a fixer 85,000
Custom Duties 10%
Freight of goods from BOC warehouse to GNC warehouse
in Makati City 20,000

What is the dutiable value, customs duties, total landed costs, and VAT on Importation?
Solution 19: Basic
Custom duties:
Peso value of supplier’s invoice 2,000,000
Other costs to bring goods in the Philippines 70,000
Dutiable value 2,070,000
Rate of duty 10%
Custom Duties 207,000
Solution 19: Basic
Dutiable value 2,070,000
Other official costs paid before withdrawal of goods from BOC 80,000
Custom Duties 207,000
TOTAL LANDED COST 2,357,000
VAT RATE: 12%
VAT on Importation 282,840
Illustration 20: Comprehensive
Mang Budang imported a sports car from the US for personal use. The following shows details of
the charges of the importation:
Arrastre P8,500
Purchase price $50,000 Bank Charge 6,000
Insurance in Transit 500 Wharfrage dues 800
Freight 800 Brokerage Fee 90,000
Total Invoice Price $51,300 Custom’s documentary stamp 265
Import processing fee 250
Total other charges P105,815

Assuming that the relevant exchange rate per customs Memorandum Circular is P45:$1 and the
importation is subject to 30% tariff rate and to a 15% excise tax. Compute for the dutiable value,
custom duties, excise tax, total landed cost and value added tax on importation.
 Solution 20: Comprehensive
The dutiable value and customs duties shall be computed The excise tax shall be computed as follows:
as follows:
Dutiable Value in Php P2,308,500
Purchase price $50,000 Customs Duty 692,550
Insurance in Transit 500 Other Charges 105,815
Freight 800 Total P3,106,865
Dutiable Value in $ $51,300 Plus 10% addition to basis (fixed in law) 310,686.5
Multiply by Exchange Rate 45.00 Excisable Value P3,417,551.50
Dutiable Value in Peso P2,308,000 Excise tax rate 15%
Multiply by Rate of Duty: 30% Excise tax P512,633
Customs Duty: P692,550
Solution 20: Comprehensive
The landed cost and value added tax are computed as follows:

Dutiable Value in Php P2,308,500

Customs Duty 692,550
Other Charges 105,815
Excise tax 512,633
Total landed cost P3,619,498
VAT Rate 12%
VAT on Importation P434,339.76

The VAT shall be paid to the Bureau of Customs (BOC) using a form prescribed by the BOC.
TECHNICAL IMPORTATION
The rules of VAT on importation apply to technical
importation of consumers in a customs territory from
persons located in a Special Economic Zones.
Customs Territory refers to the portion of the
Republic of the Philippines outside of the designated
economic zones.
TECHNICAL IMPORTATION
“Technical Importation” refers to the purchase of non – Ecozone Philippine
residents from Philippine Ecozone – registered enterprises. By legal fiction,
Ecozones are considered foreign territories. Hence, the purchase from Ecozones
such as but not limited to, Subic – Ecozone, Zambo – Ecozone, and Cagayan –
Ecozone is subject to VAT on importation.

Similarly, sales to Ecozones are subject to zero – rated VAT for VAT taxpayers
because Ecozones are considered foreign territories. Likewise, sales to Ecozones
are exempt from business tax for non – VAT taxpayers.
Illustration 21
Winshield Corporation, a PEZA locator, sold scrap
metals to Recycle Industries Corporation, a custom
territory buyer(i.e. buyer outside the Ecozone).

Is this subject to VAT on importation?

Solution 21

Recycle Industries shall pay the VAT on importation

directly to the Bureau of Customs (BOC). Winshield
Corporation is not required to impose the VAT on its
sales. However, it must be furnished a copy of the
receipt issued by the BOC for the VAT payment.
THE WITHHOLDING VAT ON
IMPORT OF SERVICES
The purchase of services from non – residents is an
importation of service which is subject to “Withholding
VAT”.
Under revenue regulations, the sale by non – residents to
Philippine residents (i.e. import in buyer’s perspective) is
always presumed made in the course of business despite
irregularity of sales operation to qualify the sale as a
business sale subject to VAT.
THE WITHHOLDING VAT ON
IMPORT OF SERVICES
In the case of sales of services by non – residents, the regulation
requires the resident buyers to “withhold” the VAT which is
presumed to have been passed – on by the non – resident seller.

The concept of “Withholding VAT” in the regulation is another

misnomer. The real object of taxation is the purchase of service
by the resident buyer. It is not the sales of the non – resident
seller.
Examples of Import of Services
1.) Lease or use of properties or property rights
owned by non – residents.
2.) Services rendered to local insurance companies,
with respect to reinsurance premiums payable to non
– residents.
3.) Other services rendered in the Philippines by non
– residents.
Illustration 22
Session Food Corporation is a licensed franchisee of
McJonalds, a non – resident foreign franchise
operator. During the month, Session paid P3,400,000
for royalties.

How much is the withholding VAT?

Solution 22
Session Food Corp. shall pay the following VAT:
Total Royalties P3,400,000
Multiply by: VAT rate 12%
VAT on Importation if services P408,000
Unless agreed that the contract price is VAT – inclusive, the VAT is not deductible against the
royalty because the Withholding VAT is not a tax on income but a tax upon the consumption of
the resident purchaser of the service.
Illustration 23
Phil Mines imported an ozone generator from abroad
at a total landed cost of P1,200,000. The foreign
seller provided installation services which it billed for
$5,000 equivalent to P220,000.

How much is the VAT on importation and withholding

VAT?
Solution 23
Phil Mines shall pay P144,000 (1,200,000 x 12%) VAT on importation
to the Bureau of Customs for the importation of the generator. The
installation service shall likewise be subject to the withholding VAT
computed as follows:
Consultancy fees P220,000
VAT Rate 12%
VAT on importation of services P26,400
Payment of the Withholding VAT
The withholding VAT is remitted monthly using BIR
form 1600 on or before the 10th day of the following
month after the withholding was made, except for
taxes withheld for December which shall be filed or
paid on or before January 25 of the following year.
Treatment of the VAT on Importation
and the Withholding VAT
1.) If the resident purchaser is a VAT – registered business, he can
claim the VAT on importation or withholding VAT as Input VAT
creditable against his Output VAT.
2.) If the resident purchaser is a non – VAT business, the VAT on
importation or Withholding VAT shall be part of the cost of purchase
of services and shall be treated as asset or expense, whichever is
applicable.
3.) If the purchaser is not engaged in business, the VAT on
Importation or withholding VAT is merely added to the costs of the
importation.