SEC. 4.106-5. Zero Rated Sales of Goods or Properties.

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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);
(a) Export sales.

(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;
 (a) Export sales.

(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. Any enterprise whose export
sales exceed 70% of the total annual production of the
preceding taxable year shall be considered an export-oriented
enterprise.
(a) Export sales.

(4) Transactions considered export sales under

Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other
special laws.
 a. Sales to bonded manufacturing warehouses of export-
oriented manufacturers;

b. Sales to export processing zones;

c. Sales to registered export traders operating bonded trading

warehouses supplying raw materials used in the manufacture of
export products under guidelines to be set by the Board in
consultation with the BIR and the Bureau of Customs.
 d. Sales to foreign military bases, diplomatic missions and other agencies
and/or instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency or not:
Provided further, That export sales of registered export traders may include
commission income; and provided, finally, That exportation of goods on
consignment shall not be deemed export sales until the export products
consigned are in fact sold by the consignee.

e. Sales of a locally manufactured or assembled goods for household and

personal use to Filipinos abroad and other non-residents of the Philippines as
well as returning Overseas Filipinos under the internal export program of the
Government and paid for in convertible foreign currency inwardly remitted
through the Philippine banking systems shall also be considered export sales.
 Items 2, 3 and 4 are now subject to 12% vat under
Sec. 31 of RA10963 (TRAIN LAW) but only upon
satisfaction of the following
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 fulfilment of the condition by the Commissioner of Internal
Revenue as provided in item 1 paragraph 1 hereof; and
2. All pending VAT refund 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.
(5) The sale 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.
 Export sales of Goods
Sec. 106 (A) (2) (b)

Sales to entities exempt under a special law or under

international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate.

Example (International Agreements)

* Sale of Goods to Asian Development Bank

* International Rice Research Institute
Effectively Zero Rated Sale (RR 16-2005)

-Shall refer to local sale of goods and

properties by a Vat registered person or
entity who was granted indirect tax
exemption under special laws or
international agreements.
 Zero Rated Sale of Services
The following Sale of Services “performed in the
Philippines” shall be subject to ZERO percent (0%) VAT.

1. Processing, manufacturing or repacking goods for other

persons doing business outside the Philippines which goods are
subsequently exported, are paid for in acceptable foreign currency
and accounted where the services for in accordance with the rules
and regulations of the Bank Sentral ng Pilipinas (BSP).
 2. Services performed by subcontractors and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose
export sales exceed seventy (70%) of total annual
production.
 3. Services other than those mentioned in item #1
above 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
Banko Sentral ng Pilipinas (BSP).
4. Services rendered to a 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 (0%) rate.
 5. Services rendered to persons engaged in
international shipping or international air transport
operations, including leases of property for use
thereof:
6. Transport of passengers and cargo by domestic
air or sea vessels from the Philippines to a foreign
country.
 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.
 INPUT VAT ON CAPITAL GOODS
More than P1M

Input tax shall be spread or allocated evenly during the

estimated useful life of the depreciable asset but it shall not
exceed 60 months. Allocation shall commence in the calendar
month when the capital good was acquired. If the capital good is
sold within the five (5) year period or prior to exhaustion of input
vat thereon, the entire unamortized input vat on the capital
goods sold can be claimed as input tax credit during the month
or quarter when the sale is made. If the life of the capital goods
or depreciable asset is not more than one (1) year or twelve (12)
months, the asset is not treated as a capital good subject to
depreciation. Hence, allocation of input vat is not applicable.
The total amount of input vat shall be claimed in the month of
acquisition.
 aRules on recognition of Input Vat for Capital Goodsa

Aggregate Acquisition for the month > P1,000,000

exclusive of vat, and

Life > 1 year Input Tax shall be spread evenly over

such useful life but not to exceed 60
months

Life ≤ 1 year Not a capital asset. Input tax is

not allocated
 Not more than
P1M
Input tax is not allocated. The total amount
of input vat shall be treated as tax credit
against output vat in the month of
acquisition.
 Under the TRAIN Law:

* The rule of amortizing the input vat on capital goods shall only
be allowed until December 31, 2021. Consequently, amortization
of input vat on capital goods purchased/imported beginning
January 1, 2022 shall no longer be allowed.

* Taxpayers with unutilized input vat as of December 31, 2021

shall be allowed to apply the same as scheduled until fully
utilized.
Illustration
CASE A:
A manufacturer purchased capital goods on several occasion as follows:

Month Amount Input Vat Useful Life No. of monthly Last month of Amortization
Of Purchased Amortization

Jan 2018 P8,500,000 P1,020,000 6 years 60 Dec. 2022

Feb 2018 8,500,000 1,020,000 4 years 48 Jan. 2022

Mar 2018 750,000 90,000 3 years - Outright claim on Mar.

2018

Dec 2021 10,000,000 1,200,000 5 years 60 Nov. 2026

Jan 2022 10,000,000 1,200,000 5 years - Outright claim on Jan.

2022
 CASE B:
A VAT registered taxpayer made the following acquisition of capital
goods from VAT registered suppliers (net of vat) during 2017:

Purchased Acquisition Estimated

Date Cost Life (Yrs.)
Jan 1
P1,000,000 10
15
500,000 2
Mar. 2
200,000 6
20
300,000 2
Oct. 6
The asset 600,000 4
was sold in 30
800,000 6
December
2017 Dec 25
3,000,000 1
 CASE B: A VAT registered taxpayer made the following acquisition of capital
goods from VAT registered suppliers (net of vat) during 2017:
Purchased Acquisition Estimated
Date Cost Life (Yrs.) The asset
Jan 1 was sold in
P1,000,000 10
December
15 2017
500,000 2
Mar. 2
200,000 6
20
300,000 2
Oct. 6
600,000 4
30
800,000 6
Dec 25
3,000,000 1

How much is the creditable input vat for the month of January?
 CASE B: A VAT registered taxpayer made the following acquisition of capital
goods from VAT registered suppliers (net of vat) during 2017:
Purchased Acquisition Estimated
Date Cost Life (Yrs.) The asset
Jan 1 was sold in
P1,000,000 10
December
15 2017
500,000 2
Mar. 2
200,000 6
20
300,000 2
Oct. 6
600,000 4
30
800,000 6
Dec 25
3,000,000 1

How much is the creditable input vat for the month of February?
 CASE B: A VAT registered taxpayer made the following acquisition of capital
goods from VAT registered suppliers (net of vat) during 2017:
Purchased Acquisition Estimated
Date Cost Life (Yrs.) The asset
Jan 1 was sold in
P1,000,000 10
December
15 2017
500,000 2
Mar. 2
200,000 6
20
300,000 2
Oct. 6
600,000 4
30
800,000 6
Dec 25
3,000,000 1

How much is the creditable input vat for the month of March?
 CASE B: A VAT registered taxpayer made the following acquisition of capital
goods from VAT registered suppliers (net of vat) during 2017:
Purchased Acquisition Estimated
Date Cost Life (Yrs.) The asset
Jan 1 was sold in
P1,000,000 10
December
15 2017
500,000 2
Mar. 2
200,000 6
20
300,000 2
Oct. 6
600,000 4
30
800,000 6
Dec 25
3,000,000 1

How much is the creditable input vat for the month of April?
 CASE B: A VAT registered taxpayer made the following acquisition of capital
goods from VAT registered suppliers (net of vat) during 2017:
Purchased Acquisition Estimated
Date Cost Life (Yrs.) The asset
Jan 1 was sold in
P1,000,000 10
December
15 2017
500,000 2
Mar. 2
200,000 6
20
300,000 2
Oct. 6
600,000 4
30
800,000 6
Dec 25
3,000,000 1

How much is the creditable input vat for the month of October?
 CASE B: A VAT registered taxpayer made the following acquisition of capital
goods from VAT registered suppliers (net of vat) during 2017:
Purchased Acquisition Estimated
Date Cost Life (Yrs.) The asset
Jan 1 was sold in
P1,000,000 10
December
15 2017
500,000 2
Mar. 2
200,000 6
20
300,000 2
Oct. 6
600,000 4
30
800,000 6
Dec 25
3,000,000 1

How much is the creditable input vat for the month of November?
 CASE B: A VAT registered taxpayer made the following acquisition of capital
goods from VAT registered suppliers (net of vat) during 2017:
Purchased Acquisition Estimated
Date Cost Life (Yrs.) The asset
Jan 1 was sold in
P1,000,000 10
December
15 2017
500,000 2
Mar. 2
200,000 6
20
300,000 2
Oct. 6
600,000 4
30
800,000 6
Dec 25
3,000,000 1

How much is the creditable input vat for the month of December?
2. Importation

Value added tax is a tax on the value added by every seller to the
purchase price or cost in the sale or lease of goods, properties or
services in the ordinary course of business as well as on
importation of goods into the Philippines, whether for personal or
business use. Vat is a business tax, hence, it should only be
imposed to transactions arising from the ordinary course of trade or
business (Chapter 7). The only exception to this rule under the Tax
Code is the imposition of vat on importation.
Illustration
Chris imported a brand new car in 2018. The importation was valued by the Bureau of Customs
(inclusive of other charges and taxes, except vat) at P3,000,000

Question 1:
Assume Chris imported the car for personal use, how much is the input vat on importation?

Answer: P360,000

Question 2:
Assume Chris imported the car for business use, how much is the input vat on importation?

Answer: P360,000

Question 3:
Assume Chris imported the car as birthday gift for his mother, how much is the input vat on
importation?

Answer: P360,000
 Question 4:
Assume that Chris is exempt from vat on importation, how much is the input vat if the
intention of Chris is to sell the car to ABC company, a non-exempt entity?

Answer: P360,000

Question 5:
Who is the importer (liable for the input vat) in Question #5?

Answer: ABC company