VALUE ADDED TAXES

Business Taxes
Definition Types
Business taxes are those 1. Value Added Tax
imposed upon onerous 2. Other percentage Tax
transfers such as sale, barter, Exception 3. Excise Tax
exchange and importation.
4. Documentary Stamp Taxes
Any business pursued by an
individual where the aggregate
gross sale or receipts do not
exceed P100,000 during the
any 12 month period
DEFINITION

Is a tax on consumption, levied on the sale, barter, exchange or

VALUE ADDED
lease of goods or properties in the Philippines and the
TAX importation of goods into the Philippines. The seller is the one
BIR FORM statutorily liable for the payment of the tax, but the amount of
the tax is shifted, or passed on, to the buyer, transferee or lessee
2550Q of the goods or properties.
NATURE AND CHARACTERISTICS

● It is a business tax levied on the value-added on certain

goods, properties and services in the domestic market
and/or importer of goods.
● It is imposed not on the goods or services as such but on
VALUE the privilege of selling or importing goods or rendering
services for a fee, remuneration or consideration.
ADDED TAX ● It is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods,
properties or services.
● The party directly liable for the payment of tax is the seller,
importer or the service provider, although the burden of tax
may be shifted or passed on to the consumer.
WHO ARE REQUIRED TO FILE VAT RETURNS?

● Any person or entity who, in the course of his trade or business, sells,
barters, exchanges, leases goods or properties and renders services subject
to VAT, if the aggregate amount of actual gross sales or receipts exceed Three
Million Pesos (Php3,000,000.00)

● A person required to register as VAT taxpayer but failed to register

● Any person, whether or not made in the course of his trade or business, who
imports goods
 VALUE-ADDED TAX RATES

● On sale of goods and properties - twelve percent (12%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or
exchanged

● On sale of services and use or lease of properties - twelve percent (12%) of

gross receipts derived from the sale or exchange of services, including the
use or lease of properties

● On importation of goods - twelve percent (12%) based on the total value used
by the Bureau of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such as tax to be paid
by the importer prior to the release of such goods from customs custody;
provided, that where the customs duties are determined on the basis of
quantity or volume of the goods, the VAT shall be based on the landed cost
plus excise taxes, if any.

● On export sales and other zero-rated sales - 0%

 COMPUTATION

FORMULA OUTPUT TAX PXXX

INPUT TAX (XX)
VAT PAYABLE PXXX

OUTPUT TAX Output tax means the VAT due on the sale,
lease or exchange of taxable goods or
properties or services by any person
registered or required to register

INPUT TAX Input tax means the VAT due on or paid by

a VAT-registered on importation of goods
or local purchase of goods, properties or
services, including lease or use of
property in the course of his trade or
business
 ‘GOODS OR PROPERTIES’

The term "goods or properties" shall mean all tangible and intangible objects,
which are capable of pecuniary estimation and shall include, among others:

● Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business;

● The right or the privilege to use patent, copyright, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like
property or right;

● The right or privilege to use in the Philippines of any industrial, commercial

or scientific equipment;

● The right or the privilege to use motion picture films, films, tapes and discs;
and

● Radio, television, satellite transmission and cable television time.

 ‘SALE OR EXCHANGE OF SERVICES’

The term "sale or exchange of services" means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
whether in kind or in cash, including those performed or rendered by the
following:

● Construction and service contractors;

● Stock, real estate, commercial, customs and immigration brokers;

● Lessors of property, whether personal or real;

● Persons engaged in warehousing services;

● Lessors or distributors of cinematographic films;

● Persons engaged in milling, processing, manufacturing or repacking goods for

others;
‘SALE OR EXCHANGE OF SERVICES’ - CONT.

● Proprietors, operators or keepers of hotels, motels, rest houses, pension

houses, inns, resorts, theatres, and movie houses;

● Proprietors or operators of restaurants, refreshment parlors, cafes, and other

eating places, including clubs and caterers;

● Dealers in securities;

● Lending investors;

● 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;

● 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;
‘SALE OR EXCHANGE OF SERVICES’ - CONT.

● Sale of electricity by generating, transmission by any entity including the

National Grid Corporation of the Philippines (NGCP), and distribution
companies including electric cooperatives shall be subject to twelve percent
(12%) VAT on their gross receipts.;

● 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;

● Non-life insurance companies (except their crop insurances), including

surety, fidelity, indemnity and bonding companies; and

● Similar services regardless of whether or not the performance thereof calls

for the exercise of use of the physical or mental faculties.
‘SALE OR EXCHANGE OF SERVICES’ - CONT.

The phrase "sale or exchange of services" shall likewise include:

● The lease of 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;

● The lease or the use of, or the right to use of any industrial, commercial or
scientific equipment;

● The supply of scientific, technical, industrial or commercial knowledge or

information;

● The supply of any assistance that is ancillary and subsidiary to and is

furnished as a means of enabling the application or enjoyment of any such
property, or right or any such knowledge or information;
‘SALE OR EXCHANGE OF SERVICES’ - CONT.

● The supply of services by a nonresident person or his employee in

connection with the use of property or rights belonging to, or the installation
or operation of any brand, machinery or other apparatus purchased from
such non-resident person;

● The supply of technical advice, assistance or services rendered in connection

with technical management or administration of any scientific, industrial or
commercial undertaking, venture, project or scheme;

● The lease of motion picture films, films, tapes and discs; and

● The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.
 DEFINITION

It is a sale, barter or exchange of goods, properties and/or

services subject to 0% VAT pursuant to Sections 106 (A) (2) and
108 (B) of the Tax Code.

ZERO-RATED It is a taxable transaction for VAT purposes, but shall not result in
any output tax.
SALE
However, the input tax on purchases of goods, properties or
services, related to such zero-rated sales, shall be available as tax
credit or refund in accordance with existing regulations.
 ZERO PERCENT 0% RATE

The following services performed in the Philippines by VAT-registered person shall

be subject to zero percent (0%) rate:
● 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);

● Services other than processing, manufacturing or repacking rendered to a

person engaged in business conducted outside the Philippines or to a
non-resident person 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);

● 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;
 ZERO PERCENT 0% RATE

● Services rendered to persons engaged in international shipping or air

transport operations, including leases of property for use thereof; Provided,
that these services shall be exclusively for international shipping or air
transport operations. (Thus, 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 twelve percent (12%) VAT
under Sec. 108 of the Tax Code, as amended);

● Services performed by subcontractors and/or contractors in processing,

converting, or manufacturing goods for an enterprise whose export sales
exceeds seventy percent (70%) of total annual production;
 ZERO PERCENT 0% RATE

● Transport of passengers and cargo by domestic air or sea carriers from the
Philippines to a foreign country. (Gross receipts of international air carriers
and international sea 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 transport of
cargo from the Philippines to another country as provided for in Sec. 118 of
the Tax Code, as amended); and

● 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 shipping 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.
 ZERO PERCENT 0% RATE

The following sales by VAT-registered persons shall be subject to zero percent

(0%) rate:

Export sales
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 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 as 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;
 ZERO PERCENT 0% RATE

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;

4. Transactions considered export sales under Executive Order No. 226,

otherwise known as the Omnibus Investments Code of 1987, and other
special laws; and

5. The sale of goods, supplies, equipment and fuel to persons engaged in

international shipping or international air transport operations;

Sales to Persons or Entities Deemed Tax-exempt under Special Law or

International Agreement
COMPUTATION KINDS OF SALE OF GOODS OR PROPERTIES SUBJECT TO VAT

1. Actual Sale
2. Transactions deemed sale:
a. Transfer, use or consumption, not in the ordinary course
of business, of goods or properties ordinarily intended
OUTPUT TAX for sale or in the course of business;
b. Distribution or transfer to
c. Consignment of goods if actual sale is not made within
60 days following the date such goods were consigned;
d. Retirement from or cessation of business, with respect
to inventories of taxable goods as of such retirement or
cessation.
 DEFINITION

It is a sale of goods, properties or service and the use or lease of

VAT-EXEMPT properties which is not subject to output tax and whereby the
SALE buyer is not allowed any tax credit or input tax related to such
exempt sale.
 VAT EXEMPT TRANSACTIONS

1. 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
therefore;

2. 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
considered as pets);

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; Provided, that such goods are exempt from custom duties under
the Tariff and Customs Code of the Philippines;
 VAT EXEMPT TRANSACTIONS

4. Importation of professional instruments and implements, tools of trade,

occupation or employment, wearing apparel, domestic animals, and personal
and household effects ( except vehicles, vessels, aircrafts machineries and other
similar goods for use in manufacture which are subject to duties, taxes and other
charges) 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 barter or sale, accompanying
such persons, or arriving within a reasonable time; Provided, That the Bureau of
Customs may, upon the production of satisfactorily evidence that such persons
are actually coming to settle in the Philippines and that the goods are brought
from their place of residence, exempt such goods from payment of duties and
taxes.
 VAT EXEMPT TRANSACTIONS

5. Services subject to percentage tax under Title V of the Tax Code, as amended;

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

7. Medical, dental, hospital and veterinary services except those rendered by

professionals;

8. 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 the government educational institutions;

9. Services rendered by individuals pursuant to an employer-employee

relationship;
 VAT EXEMPT TRANSACTIONS

10. 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;

11. Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws except those granted under P.D.
No. 529 - Petroleum Exploration Concessionaires under the Petroleum Act of 1949;

12. Sales by agricultural cooperatives duly registered and in good standing with the
Cooperative Development Authority (CDA) to their members, as well as 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;
 VAT EXEMPT TRANSACTIONS

13. Gross receipts from lending activities by credit or multi-purpose cooperatives

duly registered and in good standing with the Cooperative Development
Authority;

14. Sales by non-agricultural, non-electric and non-credit cooperatives duly

registered with and in good standing with 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;

15. Export sales by persons who are not VAT-registered;

 VAT EXEMPT TRANSACTIONS

16. The following sales of real properties:

a. Sale of real properties not primarily held for sale to customers or held for lease
in the ordinary course of trade or business.

b. 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;

c. Sale of real properties utilized for specialized housing as defined under RA No.
7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein price
ceiling per unit is Php 450,000.00 or as may from time to time be determined by
the HUDCC and the NEDA and other related laws;
 VAT EXEMPT TRANSACTIONS

d. Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house and lot and other residential dwellings
valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below,
as adjusted using latest Consumer Price Index values. (If two or more adjacent
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 One Million Five Hundred Thousand
Pesos (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.)
 VAT EXEMPT TRANSACTIONS

17. Lease of residential units with a monthly rental per unit not exceeding Fifteen
Thousand Pesos (P15,000.00), 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
Philippine Statistics Authority (Formerly known as NSO);

18. 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;

19. Transport of passengers by international carriers;

 VAT EXEMPT TRANSACTIONS

20. Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine equipment and spare parts thereof for domestic or international
transport perations; Provided, 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);

21. 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, 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 form 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 that the
mentioned in the paragraph, such portion of fuel, goods and supplies shall be
subject to 12% VAT;
 VAT EXEMPT TRANSACTIONS

22. 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 Sections 121 and 122,
respectively of the Tax Code; and

23. 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;

24. Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of

the Tax Code, as amended);

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

26. Sale of gold to the Banko Sentral ng Pilipinasn (BSP) (previously zero-rated
transaction);

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

28. 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 (Php
3,000,000.00). Note: Self-employed individuals and professionals availing of the
8% on gross sales and/or receipts and other non-operating income, under
Sections 24 (A)(2)(b) and 24 (A)(2)(c)(2) of the NIRC shall also be exempt from the
payment of twelve (12%) VAT.
 COMPLIANCE

1. Pay the annual registration fee of P500.00 for every place of business or
establishment that generates sales;

2. Register the books of accounts of the business/occupation/calling, including

practice of profession, before using the same;

3. Register the sales invoices and official receipts as VAT-invoices or VAT official
receipts for use on transactions subject to VAT. (If there are other transactions
not subject to VAT, a separate set of non-VAT invoices or non-VAT official receipts
need to be registered for use on transactions not subject to VAT);

4. Filing of the Quarterly VAT Return on or before the 25th day following the end of
the taxable quarter using BIR Form No. 2550Q

5. Submit with the RDO/LTDO having jurisdiction over the taxpayer, on or before the
deadline set in the filing of the Quarterly VAT Return, the soft copy of the
Quarterly Schedule of Monthly Sales and Output Tax and Domestic Purchases
and Input Tax.