BUSINESS TAXATION NOTES Cannot be subject to both VAT & OPT on the same

transaction

VALUE ADDED TAX

VALUE ADDED TAX

➢ Seller is liable to pay

➢ Passed on to the buyer → Indirect Tax
➢ In addition to Income Tax → Seller pays both
VAT and Income Tax

Computation Format:

Output VAT (Paired w/ Sales → Seller) XXX

Input VAT (Paired w/ Purchases → Buyer) (XXX)
VAT Payable XXX
CHARACTERISTICS OF VAT Mandatory but failed to register → Penalty: Pays
Output Tax, cannot claim Input Tax (Output VAT = VAT
1. Indirect Tax (Tax shifting is always presumed)
Payable)
2. Consumption-Based Tax
3. Imposed on the Value-Added in each stage of
production and distribution process
2. Optional

A. Gross Sales/Receipts → ≤3M (Cannot cancel

registration for 3 years)
B. VAT Exempt (Cannot cancel registration for 3
years)
C. Radio and/or TV Companies Gross Receipts →
≤10M (Irrevocable)

Advantage: You can claim Input VAT

TAX BASIS AND COMPUTATION OF VAT

4. Credit-Invoice Method Value-Added Tax

VAT REGISTRATION

1. Mandatory

A. Gross Sales/Receipts → >3M → Past 12 months

or there are reasons to believe that it will
exceed 3M in the next 12 months
B. Radio and/or TV Companies Gross Receipts →
>10M → Preceding Year
 Rates

➢ 12% → Local/Domestic Sales

➢ 0% (Zero-Rated Sales) → Export Sales

SOURCES OF OUTPUT VAT

A. SALE OF GOODS

Tax Base → Gross Selling Price/Gross Sales

B. SALE OF SERVICES

Tax Base → Gross Receipts (Actual and Constructive)

OUTPUT VAT

Liable → Any person who in the ordinary course of

business (goods or services):

➢ Sells
➢ Barters
➢ Exchanges
➢ Leases
➢ Imports
➢ Renders Services
Lessor of Residential Unit A. Consumption → Transfer, use or consumption,
Monthly Annual VAT not in the ordinary course of business of goods
OPT
Rent Rent or properties ordinarily intended for sale
≤ 15k Regardless X X
> 15k ≤ 3M X /
> 15k > 3M / X

Lessor of Commercial Unit

➢ Regardless of monthly rent, only considers

annual rent
➢ ≤ 3M or >3M Rule

Transportation Services (Domestic)

What? Where? VAT or OPT?

Goods & Cargoes Land VAT
Goods & Cargoes Air VAT
Goods & Cargoes Sea VAT
Passengers Land OPT
Passengers Air VAT
Passengers Sea VAT

C. SALE OF PROPERTIES

Tax Base → Selling Price or Fair Market Value (Zonal or

Assessor), whichever is higher

What Asset? VATable?

Capital Asset X B. Dividends → Distribution or transfer of
Ordinary Asset / inventory to shareholders for their shares in
the profits (Basis: Market Value)
C. Dacion en pago → Distribution or transfer of
D. DEEMED SALE TRANSACTIONS inventory to creditors in payment of debt
Deemed Sale → As if it is sold (Basis: Market Value)
D. Consignment → Consignment of goods if actual
sale is not made within sixty (60) days following
the date such goods were consigned
E. Retirement → Retirement from or cessation of
business with respect to ending inventories
E. ZERO-RATED SALES (0%) registered/accredited with Philippine Economic
Zone Authority (PEZA)
A. Export Sales → The sale and actual shipment of
goods from the Philippines to a foreign country
paid for in acceptable foreign currency and
ZERO-RATED VS. VAT EXEMPT
accounted for by the BSP
Zero-Rated VAT Exempt
Output VAT Always Zero N/A
Less: Input VAT (P XXX.XX) N/A
VAT Payable
(P XXX.XX) N/A
(Refundable)

INPUT VAT

Buyer and Seller must be both VAT registered → To

claim Input VAT
B. Export of Services → Services other than
processing, manufacturing or repacking goods
for other persons engaged in business who is SOURCES OF INPUT VAT
outside the Philippines when the services are
A. PURCHASE OF GOODS & SERVICES
performed, the consideration for which is paid
for in acceptable foreign currency and 1. For Sale (Merchandise)
accounted for in accordance with the rules and 2. For Conversion (Raw to FGI)
regulations of the BSP 3. For Supplies (Used in business)
C. Sale of Goods & Rendering Services to persons
engaged in international shipping or
international air transport operations → Sale of B. IMPORTATION
goods, supplies, equipment and fuel to persons
engaged in international shipping or You will pay VAT whether or not the goods imported
international air transport operations, provided are used in business
such goods, supplies and equipment, shall be Used for? Output VAT Input VAT
exclusively used for international transport → Personal / X
Services rendered to persons engaged in Business / /
international shipping or air transport Goods are considered as imported once removed from
operations Bureau of Customs (BOC), not when still in BOC → Pay
D. Transport of passengers and cargo by domestic VAT, Excise Tax, Customs Duties, and other expenses in
air or sea carriers from the Philippines to a order to remove from BOC
foreign country
E. Sale of power or fuel generated through
renewable sources of energy

Effectively zero-rated sales (under International

Agreements or Special Laws)

➢ Sale to Asian Development Bank (ADB),

International Rice Research Institute (IRRI),
registered/accredited with Subic Bay
Metropolitan Authority (SBMA), and
What if the actual importer is a tax-free importer? → C. PURCHASE OF CAPITAL GOODS
The subsequent purchaser will be liable for the VAT, as
How much? Input VAT
if he is the importer
Claimable
Aggregate ≤ 1M 100% (Outright)
MONTHLY Allocate to
acquisition cost Useful Life*
> 1M
(Exclusive of Allocate to
VAT) 60months*
*whichever is shorter
D. PRESUMPTIVE INPUT VAT (4%)

Processor of sardines, mackerel,

milk (SaMaMi)
Who can
Manufacturer of Refined Sugar,
avail?
Cooking Oil, Packed Noodle-Based
Instant Meal (ReCoPa)
Tax Base → Purchases of primary agricultural products
which are used as inputs to their production

Rationale → Sale of agricultural products at original

state are exempt from VAT, therefore, no input VAT.
Presumptive VAT is provided to lessen the VAT payable
E. TRANSITIONAL INPUT VAT (2%)

Liable to VAT for the first time

(3M → Mandatory)
Applies to
Opted to be VAT-registered
(Optional)
Tax Base → Whichever is higher → Beginning Inventory
from VAT or non-VAT Supplier (Goods, Materials,
Supplies) x 2% VS. Actual VAT paid on Beginning
Inventory

EXCESS OUTPUT VAT OR INPUT VAT

2 Scenarios:

A. Output > Input → Excess Output

➢ Excess: VAT Payable

B. Output < Input → Excess Input

➢ Stay in the books as Input VAT (Prepaid Asset)

➢ Credit only Input VAT up to the extent of the
F. CREDITABLE WITHHOLDING VAT (5%)
Output VAT
When selling to government, govt withholds 5% ➢ Excess: Prepaid Asset (Remaining Input VAT)
➢ Excess Input
The 5% VAT withheld by the govt shall be creditable
• 12% (Domestic/Local Seller) → Carried
against the output VAT of the seller
over to the next month/quarter
Input VAT to be recognized by the seller on its sale to • 0% (Export Seller)
the govt shall be the actual amount of VAT on ❖ Option 1: Carry-over and offset
purchases to output tax of local/domestic
sales (seller is exporting and
selling locally)
❖ Option 2: Tax Refund →
Application within 2 years after
the close of the quarter
 ❖ Option 3: Convert into Tax C. Importation of personal and household effects
Credit Certificate (TCC) → May belonging to residents of the Philippines
be used in paying other internal returning from abroad and non-resident
revenue taxes coming to resettle in the Philippines

VAT EXEMPT TRANSACTIONS

Output → No Output VAT

VAT-EXEMPT Input → Not reported as Input VAT
→ Closed to Expense/COGS

A. Sale or importation of agricultural and marine

food product in their original state (original
state even if they have undergone the simple D. Importation of professional instruments and
process of preparation or preservation for the implements, wearing apparel, domestic
market such as freezing, drying, salting, animals, and personal and household effects
broiling, roasting, smoking, or stripping) belonging to persons coming to settle in the
Philippines for their own use and not for barter
or sale

E. Services subject to other percentage tax (OPT)

B. Sale or importation of fertilizers, seeds,

seedlings and fingerlings; fish, prawn, livestock
and poultry feeds

F. Services of agricultural contract growers and

milling for others of palay into rice, corn into
grits and sugar cane to raw sugar
G. Medical, dental, veterinary services except multinational corporations which act as a
those rendered by professionals supervisory, communication and coordinating
centers

K. Transactions which are exempt under

international agreements to which the
Philippines is a signatory or under special laws

L. Sale by agricultural cooperatives duly

registered with the Cooperative Development
Authority (CDA) to their members as well as
sale of their produce to non-members

H. Educational services rendered by private

educational institutions duly accredited by
DepEd, CHED and TESDA and those rendered by
government educational institutions

M. Gross receipts from lending activities by credit

or multi-purpose cooperatives duly registered
with the CDA

I. Services rendered pursuant to employee-

employer relationship

J. Services rendered by regional or area

headquarters established in the Philippines by
N. Sales by non-agricultural, non-electric and non-
credit cooperatives duly registered with the
CDA, provided that the share capital
contribution of each member does not exceed
P15,000

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 low-cost and socialized
housing as defined by RA 7279 (Urban
Development Act of 1992). Sale of residential
lot valued at P1,500,000 and below, house and
lot and other residential dwellings valued at
P2,500,000 and below (beginning Jan. 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 and
sale of house and lot and other residential
dwellings with threshold reduced to
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 (CPI), as published by the
Philippine Statistics Authority (PSA)

TRAIN
Before Jan CREATE
Starting
1, 2021 LAW
Jan 1, 2021
1. Not
primarily held
Ex Ex
for sale
O. Export sales by non-VAT registered individuals (Capital Asset)
(Zero-Rated if Registered, Exempt if non- 2. Low Cost
Ex VAT
registered) Housing
3. Socialized NO
Ex Ex
Housing CHANGE
4. Residential ≤ 1.5M Ex
VAT
Lot (1,919,500)
4.1. House &
Lot and Other ≤ 2.5M Ex ≤ 2M
Residential (3,199,200) (2,559,300)
Dwellings
Q. Lease of residential unit with monthly rental
not exceeding P15,000
 S. Transport of passengers by international
carriers

R. Sale, importation, printing or publication of

books, and any newspaper, magazine, journal,
review bulletin, or any such educational
reading material covered by the United Nations
Educational, Scientific and Cultural Organization
(UNESCO) Agreement on the importation of
educational, scientific and cultural materials,
T. Sale or importation or lease of passenger or
including the digital or electronic format
cargo vessels and aircrafts, including engine,
thereof. Provided that the materials
equipment and spare parts for domestic or
enumerated herein are not devoted principally
international operations
to the publication of paid advertisements.
Provided further, that the materials enumerated
herein are compliant with the requirements set
U. Importations of fuel, goods and supplies by
forth by the National Book Development Board
person engaged in international shipping or air
TRAIN LAW CREATE LAW transportation, provided, such fuel, goods and
a. Books supplies are exclusively used for international
b. Newspaper transport operations
c. Magazine
a. Books d. Journal V. Service of banks, non-bank, financial
b. Newspaper e. Review bulletin, or intermediaries performing quasi-banking
c. Magazine f. Any such educational reading
functions (money changers, pawnshops)
review or material covered by the
bulletin UNESCO agreement on the
importation of educational,
scientific, and cultural W. Sale of goods or lease of goods to senior
materials citizens and persons with disability (PWDs)
Exemption only
applies to the Exemption includes the digital or
sale of physical electronic format X. Transfer of property pursuant to Section 40 (C)
copies (2) (Sale of exchange of assets in a newly
organized or incorporated corporation, merger
and consolidation)

Y. Association dues, membership fees, and other

assessments and charges collected by
homeowners’ associations and condominium
corporations
 treatment of COVID-19.
Drugs for the treatment
Z. Sale of gold to BSP of COVID- 19 approved
by the food and drug
administration (FDA) for
AA. Sale or importation of prescription drugs and use in clinical trials
medicines for: (i) diabetes, high cholesterol,
and hypertension beginning January 1, 2020;
and (ii) cancer, mental illness, tuberculosis, and
kidney diseases beginning January 1, 2021 CC. Sale or lease of goods or properties or the
performance of service other than the
TRAIN LAW CREATE LAW
Diabetes, high transactions mentioned in the preceding
cholesterol, paragraphs, the gross annual sales and/or
Diabetes, high receipts do not exceed the amount of
hypertension, cancer,
cholesterol, and P3,000,000 (Subject to OPT).
mental illness,
hypertension
tuberculosis, kidney
diseases

BB. Sale or importation of the following beginning

January 1, 2021 to December 31, 2023 (3
years):
1. Capital equipment, its spare parts and
raw materials, necessary for the
production of personal protective
equipment (PPE) components such as
coveralls, gown, surgical cap, surgical
mask, n-95 mask, scrub suits, goggles
and face shield, double or surgical
gloves, dedicated shoes, and shoe
covers, for COVID-19 prevention
2. All drugs, vaccines and medical devices
specifically prescribed and directly used
for the treatment of COVID-19
3. Drugs for the treatment of COVID-19
approved by the Food and Drug
Administration (FDA) for used in clinical
trials, including raw materials directly
necessary

TRAIN LAW CREATE LAW

Capital equipment, its
spare parts and raw
materials, necessary for
the production of
personal protective
no provision
equipment components.
All drugs, vaccines and
medical devices
specifically prescribed
and directly, used for the