VAT on Sale of
Products &
Services
TAXN 22
What We'll
Discuss
Sale of Goods or Properties
Sale or Conduct of Services
TAXN 22
Recap
WHAT IS VAT?
It is a tax on consumption levied on the sale, barter, exchange or
lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines.
Output VAT less Input VAT = Net Vat Payable
VAT is indirect tax and is "passed on' to consumers who actually
paid the tax
TAXN 22
Sale is the transfer of ownership of property in consideration of
money received or to be received.
VAT on Sale Barter or exchange is the transfer of ownership of property in
of Goods or consideration of property received or to be received.
Transactions deemed sale
Properties transfer/use of goods/products not in the course of business
transfer of inventory to shareholders as share of profit
transfer of inventory to as payment of debt
consignment if actual sale is not made within 60 days
inventories sold during retirement from or cessation of
business
TAX BASE
Gross Selling Price
(including excise tax if any)
net of:
sales return and allowances
sales discounts
(at the time of sale)
SALES INVOICE PRICE/SRP:
can be manual or through
computer generated
P100K
VAT Inclusive
VAT = 10,714.28
Vat Exclusive
VAT = 12,000
VAT RATES
12% 5% 0%
Domestic Sales Sale to Export Sales
Government
VAT on Sale Sale or exchange of services means performance of all kinds of
services in the Philippines for others for a fee, remuneration or
consideration.
of Services Excluding employer-employee relationships
EXAMPLE OF SALE OF SERVICE
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;
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;
EXAMPLE OF SALE OF SERVICE
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 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;
EXAMPLE OF SALE OF SERVICE
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.
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
EXAMPLE OF SALE OF SERVICE
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.
TAX BASE
Gross Receipts
cash or cash equivalent that are actually or constructively received
including deposits and advance payments
OFFICIAL
RECEIPT
VAT RATES
12% 0%
Gross Receipts Certain
Transactions
TRANSACTIONS 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 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);
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;
TRANSACTIONS SUBJECT TO
ZERO PERCENT (0%) RATE
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 exclusive for international shipping or air transport operations; [92]
Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%)
of total annual production;
Transport of passengers and cargo by domestic [92] air or sea vessels from the Philippines
to a foreign country; and
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.
Services rendered to offshore gaming licensees subject to gaming tax under Section 125-A
of this Code by service providers
VAT Output VAT : GSP net of SR and SD or GR x VAT Rate XXX
payable Input VAT : Purchases x VAT Rate (XXX)
VAT Payable: Output VAT - Input VAT XXX
Cash XXX
Output Tax XX
Journal Sales / Revenue XXX
Entries Purchases / Equipment / Expenses XXX
Input Tax (if seller is VAT) XX
Cash / Accounts Payable XXX
Output Tax XX
Input Tax XX
VAT Payable XX
VAT
Exemptions
EXEMTIONS FROM VAT
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;
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);
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;
EXEMTIONS FROM VAT
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.
EXEMTIONS FROM VAT
Services subject to percentage tax under Title V of the Tax Code, as amended;
Services by agricultural contract growers and milling for others of palay into rice, corn into
grits, and sugar cane into raw sugar;
Medical, dental, hospital and veterinary services except those rendered by professionals;
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;
Services rendered by individuals pursuant to an employer-employee relationship;
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
EXEMTIONS FROM VAT
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;
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;
Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered and in good standing with the Cooperative Development Authority;
EXEMTIONS FROM VAT
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;
Export sales by persons who are not VAT-registered;
The following sales of real properties:
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 properties utilized for low-cost housing
Sale of real properties utilized for specialized housing
Sale of residential lot valued at P1.5M (now P2M CREATE law), or house and lot and
ther residential dwellings valued at P2M (now P4.2M per CREATE law)
EXEMTIONS FROM VAT
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;
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;
Transport of passengers by international carriers;
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);
EXEMTIONS FROM VAT
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;
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
EXEMTIONS FROM VAT
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;
Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax
Code, as amended);
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;
Sale of gold to the Banko Sentral ng Pilipinasn (BSP) (previously zero-rated transaction);
EXEMTIONS FROM VAT
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
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
EXEMTIONS FROM VAT
(CREATE LAW)
Sale or distribution, importation, printing, or publication of any educational material
covered by the UNESCO agreement including digital and electronic format
All drugs, vaccines, and medical devices prescribed and used for the treatment of COVID-
19
Capital equipment, its spare parts, and raw materials for the production of personal
protective equipment for COVID-19 prevention
Drugs for the treatment of COVID-19 approved by the FDA for use in clinical trials,
including raw materials directly necessary for the production of such drugs
Sale of prescription drugs and medicines for cancer, mental illness, tuberculosis, diabetes,
high cholesterol, hypertension, and kidney disease
Thank
you
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