VALUE-

ADDED TAX
Business Taxation
 TABLE OF CONTENTS
Introduction and Concept Transaction Deemed Sale
Sources of Input VAT VAT on Importation
Persons Liable VAT Exempt Transactions
VAT on Sale of Goods Filing of VAT

Zero - Rated Sales

 CONCEPT
VAT is a ...
1. Tax on Consumption
2. Percentage Tax
3. Business Tax
 CONCEPT
1. VAT AS A TAX ON CONSUMPTION
Levied on the sale, barter, exchange, or lease
of goods or properties and services in the
Philippines
Also imposed on the importation of goods
into the Philippines.
 CONCEPT
2. VAT AS A PERCENTAGE TAX
Imposed at every stage of the distribution
process on the sale, barter, exchange, or
lease of goods or properties
Also applies to the performance of services
Covers importation of goods, whether for
business or non-business purposes.
 CONCEPT
3. VAT AS A BUSINESS TAX
Levied on certain transactions involving a
wide range of goods, properties, and services
Payable by the seller, lessor, or transferor
Imposed on the value not previously
subjected to VAT.
 VAT REGISTRATION
Any person intending to engage in business shall determine whether
he has to register his business as VAT or non-VAT.
Registration for VAT business is compulsory when his expected annual
gross sales or receipts exceed P3 Million.
If taxpayer expects to exceed the threshold, then it may opt to
register under the VAT system. Optional registration as VAT taxpayer
is irrevocable for 3 years from the quarter when election was made.
VAT registered business is subject to 12% business tax.
Non-VAT business is generally subject to 3% business tax (3% Other
Percentage Tax) on gross receipts/sales.
 CHARACTERISTICS
1. It is a tax imposed on the value added to goods,
properties, or services of a taxpayer.

2. It is a transparent form of sales tax imposed on

the taxable sale, barter, or exchange of goods,
properties or services.

3. It is a broad-based tax on consumption imposed on

all stages of taxable sale but the tax burden rests
with the final consumer who consumes the goods,
properties, or services.
 CHARATERISTICS
4. It is an indirect tax.

5. It is computed through “tax credit method” or

“invoice method” wherein the input tax shifted by the
sellers to the buyer is credited against the buyer’s
output taxes when he in turn sells the taxable goods,
properties, or services.

6. It follows the “destination principle/cross-border

doctrine”.
 IMPACT VS INCIDENCE OF TAX
IMPACT INCIDENCE
The impact of taxation is on
the statutory taxpayer, the The incidence of tax is on
one from whom the the one who bears the
government collects. burden of taxation.
The impact of VAT is on the The incidence of VAT is on
seller upon whom the tax the final consumer.
has been imposed.
 TAX CREDIT METHOD
Refers to the manner by which the value-added tax
(VAT) of a taxpayer is computed.
Input taxes shifted by sellers to buyers are credited
against the buyer’s output taxes.
This applies when the buyer sells taxable goods,
properties, or services.
Under the VAT method of taxation, which is
invoice-based, an entity can credit against or
subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and
imports.
 TAX CREDIT METHOD
If, at the end of a taxable quarter:
Output taxes = Input taxes
NO PAYMENT IS REQUIRED
Output taxes > input taxes
THE EXCESS MUST BE PAID
Input taxes > output taxes:
THE EXCESS IS CARRIED OVER TO THE NEXT
QUARTER
 TAX CREDIT METHOD
If excess comes from:
a. Zero-rated or effectively zero-rated
transactions
b. Acquisition of capital goods
EXCESS MAY BE REFUNDED OR
CREDITED AGAINST OTHER INTERNAL
REVENUE TAXES
 FORMULA OF VAT
1. Output VAT

Sales or Gross Receipts xxx

Multiplied by VAT Rate (12%) xxx

Output VAT xxx

 FORMULA OF VAT
2. Input VAT

Purchases & Services from VAT Person xxx

Multiplied by VAT Rate (12%) xxx

Input VAT xxx

OUTPUT VAT – INPUT VAT = VAT PAYABLE or EXCESS INPUT TAX

 FORMULA OF VAT
3. Net VAT Payable
Output VAT on Sales xxx

Less: Input VAT on Purchases & Services (xxx)

Less: Creditable VAT Withheld (xxx)

Net VAT Payable (Refundable) xxx

DESTINATION PRINCIPLE
The Destination Principle or Cross-Border Doctrine
means that goods and services are taxed only in the
country where they are consumed.
The Philippine VAT system adheres to this principle,
where no VAT shall be imposed as part of the cost of
goods destined for consumption outside the country.
The VAT system uses this principle to determine tax
jurisdiction:
Exports are zero-rated
Imports are subject to VAT
 INPUT & OUTPUT TAX
INPUT TAX – the VAT due from or paid by a VAT-
registered person in the course of his trade or
business on importation of goods or local purchase
of goods or services, including lease or use of
property, from a VAT-registered person.
OUTPUT TAX – the VAT due on the sale or lease of
taxable goods or properties or services by any person
registered or required to register under Section 236
of the Tax Code.
 SOURCES OF INPUT VAT
1. Purchase or importation of goods
a. For Sale
b. For conversion into or intended to form part of a
finished product for sale including packaging materials.
c. For use as supplies in the course of business
d. For use as materials supplied in the sale of service
e. For use in trade or business for which deduction for
depreaciation or amortization
 SOURCES OF INPUT VAT
2. Purchase of real properties for which a VAT
has actually been paid.
3. Purchase of services in which VAT has
actually been paid..
4. Transactions deemed sale
5. Transitional input tax - (2%)
6. Presumptive input tax - (4%)
 SOURCES OF INPUT VAT
Transitional Input Tax - 2% of beginning inventory of
goods, materials and supplies OR the actual VAT paid on
such goods, materials and supplies (Whichever is HIGHER).

Presumptive Input Tax - Persons or firms engaged in the

processing of sardines, mackerel and milk, and in
manufacturing shall be allowed a presumptive input tax,
creditable against the output tax, equivalent to 4% of the
gross value in money of their purchases of primary
agricultural products which are used as inputs to their
production.
 PERSONS LIABLE
Any person who:
a. in the course of his trade or business
i. sells
ii. barters
iii. exchanges,
iv. leases goods or properties
v. renders services

b. any person who imports goods

shall be subject to VAT (Sec. 105, Tax Code)
 PERSONS NOT LIABLE
When the annual sales do not exceed P 3.0 million:
Any person whose gross annual sales and/ or receipts do not
exceed the amount of 3 million, and who is not VAT-
registered shall pay a tax equivalent to 3% of his gross
monthly sales or receipts.

To be subject to 3% percentage tax, the following requisities

must be satisfied:
1. The gross annual sales and/or receipts do not exceed P3
million and;
2. The taxpayer is not a VAT-registered person.
 VAT ON SALE OF GOODS
Rate: 12% VAT (beginning 1 February 2006)
Basis: Gross selling price/gross value in money of the goods or properties
Who Pays: Paid by SELLER

Goods or properties - all tangible and intangible objects which are

capable of pecuniary estimation, inlcuding:
1. Real properties held primarily for sale to customer or held for lease in
the ordinary course of trade or business;
2. 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;
3. The right or the privilege to use in the Philippines of any industrial,
commercial or scientific equipment;
4. The right or privilege to use motion picture films, films tapes and decs;
5. Radio, television, satellite transmission and cable television time.
WHAT IS GROSS SELLING PRICE?
The term “gross selling price” means the total amount of money or
its equivalent which the purchaser pays or is obligated to pay to the
seller in consideration of the sale, barter or exchange of the goods or
properties, excluding VAT.

The excise tax, if any, on such goods or properties shall form part of
the gross selling price.

In the case of sale, barter or exchange of real property, gross

selling price shall mean the consideration stated in the sales
document or the fair market value. Whichever higher:
> Zonal Value (provided by BIR) or
> Fair Market Value (as shown in the schedule of values of the
provincial and city assessors).
 COMPUTATION OF VAT ON
SALE OF GOODS
Tax Exclusive Method
Example: Gross sales in a day P100,000

VAT: P100,000 X 12% = P12,000

Tax Inclusive Method

Example: Invoice Price of P112,000

Formula 1; VAT - P112,000 / 1.12 X 12% = P12,000

Formula 2: VAT - P112,000 X 12%/1.12 = P12,000
 ALLOWABLE DEDUCTIONS FROM
THE GROSS SELLING PRICE
The following shall be allowed as deduction from the gross selling
price:

1. Discounts determined and granted at the time of the sale, which are
expressly indicated in the invoice, the amount thereof forming part of
the gross sale duly recorded in the books of accounts, and
2. Sales return and allowances for which proper credit or refund was
made during the month or quarter to the buyer for sales previously
recorded as taxable sales.
R.R. No. 16-2005. Sec. 4. 106-9;Sec. 106 (D), Tax Code)
 REQUISITES OF TAXABILITY OF
SALE OF GOODS OR PROPERTIES
The sale of goods (tangible or intangible) must be:

1. an actual or deemed sale of goods or properties for a valuable

consideration;
2. undertaken in the course of trade in business;
3. for the use or consumption in the Philippines; and
4. not exempt from value added tax under the Tax Code, special law, or
international agrrement
 VAT ON SALE OF REAL PROPERTY
Sale on real property held primarily for sale to customers or held for
lease in the ordinary course of trade or business of the seller shall be
subject to VAT. (Sec. 4. 206-3, RR 16-2005)

Requisite for Taxibility of Sale or Exchange of Real Property;

1. The seller execute a deemed of sale, barter, exchange, assignment or

conveyance, or contract to sell of real property;
2. The real property is located within the Philippines;
3. The seller or transferor is engaged in real estate business either as a real
estate dealer, developer, or lessor;
4. The real property is held primarily for sale or for lease in the ordinary
course of his trade or business, or at least an ordinary asset used in the
trade or business of the VAT taxpayer as an incident to his VAT-taxable
activity.
5. The sale is not exempt from VAT under Sec. 109 of the NIRC, special law, or
international agreement.
 SALE OF REAL PROPERTY
SUBJECT TO VAT NOT SUBJECT TO VAT

1. On installment plan
1. Nor primarily held for sale
2. Pre-selling by real estate
2. Low cost or socialized
dealers
housing
3. Sale of residential lot
3. Land-selling price does
exceeding P1,500,000
NOT exceed P1.5M
4. Sale of house and lot
4. House and Lot-selling
exceeding P2,000,000
price does NOT exceed P2M
(effective January 1, 2021;
5. Transmission to a trustee
formely P2.5M)
 INSTALLMENT SALE
(REAL PROPERTY)
1. Sale of real property by a real estate dealer
2. The initial payment* of which in the year of sale do not
exceed 25% of the gross selling price.

Initial payments = Down payment + All payments (actually

or constructively received during the year of sale)
 DEFERRED PAYMENT
(REAL PROPERTY)
In the case of sale of real properties on the deferred-paymnet
bases, the initial payments in the year of sale exceed 25% of
the gross selling price.

The transaction shall be treated as cash sale which makes the

entire selling price taxable in the month of sale.
 SALE OF REAL PROPERTY
INSTALLMENT SALE DEFERRED PAYMENT

Initial payment does not Initial payment exceeds 25%

exceed 25% of the GSP of the GSP
Taxable ONLY on the Treated as cash sale and
payment actually or the entire selling price is
constructively received taxable on the month of
Ex. Assume that during the year of sale sale
IP: P1M OF P10M (10% of SP) Ex. Assume that during the year of sale
IP is less than 25%, is Installment Sale IP: P3M OF P10M (30% of SP)
VAT for the year 1 is P1M x 12% = IP is more than 25%, is Deferred Payment
P120,000 VAT P10M x 12% = P1.2M (output VAT0
For 2 years onwards, VAT is based on P1.2 M output VAT is payable on the
future installment collections. month of sale
 ZERO-RATED SALES
A zero-rated sale of goods, properties,
and/ or services (by a VAT-registered
person) is a taxable transaction for
VAT purposes, but shall not result in
any output tax.
 ZERO-RATED SALES
The Philippine VAT Law adheres to the CROSS BORDER
DOCTRINE or DESTINATION PRINCIPLE of the VAT
system which means that no VAT shall be imposed to
form part of the cost of good destined for
consumption outside the territorial border of the
Philippine taxing authority.
 FORMULA
GROSS SALES Pxx
(regardless of shipping arrangements)
x VAT RATE 0%
OUTPUT VAT Pxx
less: INPUT VAT (xx)
VAT PAYABLE (REFUNDABLE) (Pxx)
The input vat on goods subjected to 0% may be:

a) refunded
b) claimed as deduction or tax credit against
output vat
c) claimed as tax credit against any internal
revenue taxes
 ZERO-RATED SALES VS. EXEMPT SALES
ZERO-RATED SALES EXEMPT SALES

BOTH DOES NOT HAVE OUTPUT VAT

Creditable and Refundable Non-Creditable and Nonrefundable Input

Input VAT VAT (claimed as deductions in the ITR)

Full Relief Partial Relief

 TWO TYPES OF
ZERO-RATED SALES
A. ZERO-RATED SALES

B. EFFECTIVELY ZERO-RATED SALES

 ZERO-RATED SALES OF GOODS OR
PROPERTIES
1. Export Sales
2. Sales to persons or entities whose exemption from direct or
indirect taxes under special laws or international agreements to
which the Philippines is a signatory effectively subjects such
sales to zero rate
3. Sale of raw materials, inventories, supplies, equipment,
packaging materials, and goods to a Registered Export Enterprise
(REE), to be used directly and exclusively in its registered
project or activity
 EXPORT SALES
A. Direct export - sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any shipping
arrangement that influences or determines the transfer of
ownership of the goods so exported.

Required:
1. Paid for in acceptable foreign currency or its equivalent in
goods or services
2. Accounted for in accordance with the rules and regulations
of BSP
 DIRECT EXPORT
EXAMPLE:
Jasmin Corp. sold various goods as follows:
Customer/ Buyer Place delivered Payment

Resident alien Philippines $ 15,000 cash

Visiting Tourist Philippines P 520,000 cash

A Filipino Employee in
South Korea KRW 800,000 cash
South Korea
A company in Singapore SIngapore $ 10,000 cash
The related conversion rates were: $: P60; KRW: P50
 EXPORT SALES
B. 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
 SALES TO PERSONS OR ENTITIES WHOSE EXEMPTION FROM
DIRECT OR INDIRECT TAXES UNDER SPECIAL LAWS OR
INTERNATIONAL AGREEMENTS TO WHICH THE PHILIPPINES IS A
SIGNATORY EFFECTIVELY SUBJECTS SUCH SALES TO ZERO RATE
Examples of entities granted indirect tax exemption under special laws or
international agreements:
1. Asian Development Bank (ADB)
2. International Rice Research Institute (IRRI)
3. United Nation (UN) and its various organizations
4. United States Agency for International Development (USAID) and its personnel
and contractors
5. Embassies, qualified employees and dependents - subject to the reciprocity rule
6. Philippine National Red Cross (PNRC)
7. Philippine Amusement and Gaming Corporation and its licensees or contractors
 REGISTERED EXPORT ENTERPRISE (REE)
refers to any individual, partnership, corporation, Philippine
branch of a foreign corporation, or other entity organized and
existing under Philippine laws and registered with an Investment
Promotion Agency (IPA) to engage in manufacturing, assembling
or processing activity, and services such as information
technology (IT) activities and business process outsourcing (BPO),
and resulting in the direct exportation, and/or Sale of its
manufactured, assembled or processed product or IT/BPO services
to another registered export enterprise that will form part of
the final export product or export service of the latter, of at
least seventy (70%) of its total production or output.
 REGISTERED EXPORT ENTERPRISE (REE)
The VAT zero-rating ON LOCAL PURCHASES OF
GOODS shall be availed of on the basis of the VAT
zero-rating certification issued by the concerned
IPA, without prejudice, however, to the conduct of
post audit investigation/verification by the Bureau
of Internal Revenue (BIR) that the goods are, indeed
directly and exclusively used by the registered
export enterprise in its registered project or
activity
 ZERO-RATED SALES OF SERVICES
Mnemonic: FEED IN
1. Sale of services to Non-residents
2. Effectively zero-rated sales of services
3. Services rendered to persons engaged in International
Shipping
4. Transport of passengers and cargoes by Domestic air or
sea carriers
5. Sale of power or Fuel generated from renewable sources
of energy
6. Services rendered to ecozones or tourism enterprise
zones
 SALE OF SERVICES TO NON-RESIDENTS
Services other than processing, manufacturing or repacking rendered
to a person engaged in business conducted outside the Philippines or
to a non-resident person not-engaged in business who is outside
Philippines when the services are performed

Requirement for zero-rating of services to non-residents:

a. The services must be performed in the Philippines
b. The services must be paid for in acceptable foreign currency or its equivalent
in goods or services.
c. The payment must be accounted for under the rules and regulations of the
BSP.
 SALE OF SERVICES TO NON-RESIDENTS
Illustration 1
Excel Tailoring, a VAT taxpayer, is engaged in a sewing business. During the
month, it had the following receipts from the sewing services to various clients:

Item Client Amount

School uniforms DLSU, a Philippine university P 800,000
Garment Levi’s, a foreign dressmaker $ 100,000
Curtains Finesse, a foreign textile manufacturer P 1,000,000

The receipt from DLSU is subject to 12% VAT as it is a domestic consumption.

The receipt from Levi’s is subject to zero-rated VAT. The receipt from Finesse is
VAT exempt because it is a foreign consumption, but it is not paid in foreign
currencies.
 EFFECTIVELY ZERO-RATED SALES OF
SERVICES
The local sales of services to a person or entity who was granted indirect tax
exemption under special laws or international agreements shall likewise be
subjected to 0% VAT.

SERVICES RENDERED TO PERSONS

ENGAGED IN INTERNATIONAL SHIPPING
To be considered for zero-rating, service shall be exclusively for international
shipping or air transport operations.
 SERVICES RENDERED TO PERSONS
ENGAGED IN INTERNATIONAL SHIPPING
Illustration

S2Technologies specialized in aircraft repair maintenance services.

S2Technologies has two clients: Malay Airlines and Airphil. Malay
Airlines is an international air carrier while Airpil is a domestic
carrier.

The service fees for Airphil shall be subject to 12% VAT. The service
fees from Malay Airlines shall be subject to 0%VAT
 TRANSPORT OF PASSENGERS AND CARGOES
BY DOMESTIC AIR OR SEA CARRIERS
Gross receipts of International air or shipping 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

coming flights-exempt
Outgoing flights-zero-rated
Domestic flights-12% VAT
 SALE OF POWER OR FUEL GENERATED
FROM RENEWABLE SOURCES OF ENERGY
The sale of power or fuel from renewable sources or energy is
zero-rated. Renewable sources of energy may include, but are not
limited to, biomass, solar, wind, hydropower, geothermal and
steam, ocean energy, and other emerging sources using
technologies such as fuel cells and hydrogen fuels. (RA 9513 & RA
9337).
The zero-rating treatment is limited to sale of power and does not
extend to sale of services related to the maintenance or operation of
plants generating said fuel.
 SERVICES RENDERED TO ECOZONES OR
TOURISM ENTERPRISE ZONES
The sales of goods to registered enterprises of economic
zone or tourism enterprise zones are also subject to 0% VAT.
Registered enterprises within economic zones (like those registered
with the Philippine Economic Zone Authority (PEZA)) and tourism
enterprise zones (TEZs) declared by the Tourism Infrastructure and
Enterprise Zone Authority (TIEZA)) are eligible for VAT zero-rating
on local purchases and sales of goods and services directly related
to their registered activities.
VAT ON IMPORTATION
 COMPOSITION OF LANDED COST
A. Dutiable Value B. Other In - Land Cost
1. Cost of the Goods 1. Custom Duty
2. Freight 2. Excise Tax, if any
3. Insurance 3. Other In-land costs, such as:
4. Other charges and - Bank Charge
cost to bring the goods - Arrastre charge
- Documentary Stamp Tax
- Import Processing Fee
- Brokerage Fee
- wharfage due
 TRANSFER OF GOODS BY TAX -
EXEMPT PERSON
GR: Importations are subject to VAT

However, importations by tax - exempt persons are not subject to VAT

If importer is tax exempt, the subsequent purchasers, transferees or

recipients of such imported goods shall be liable for the tax on importation
 Landed Cost

BOC
VAT
Domestic Goods
consumption BIR
Service FWVAT

Foreign Zero - rated

Contract Price
Consumption
 VAT EXEMPT
TRANSACTION
EXEMPT SALES- are exempt consumption of
goods or services from domestic sellers.

NOTE: Exempt Sales are NOT subject to VAT

and Percentage Tax.
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
1. Sale of goods to Senior citizens and persons with disability
2. Sales of Exempt goods
3. Sales of goods by Cooperatives
4. Sales of Real Properties
5. Export sales by non-VAT persons
6. Treaty-exempt sales of goods
7. Tax-free exchange of property
8. Sale of Gold to the Bangko Sentral ng Piilipinas (BSP)
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
1. Schools
2. Employees
3. Agricultural Contract growers and millers
4. Residential Leasing
5. Cooperative Services
6. Hospitals
7. Home owner’s Association or condominium corporations
8. Lease passenger or Cargo Vessels and Aircrafts, including engine equipment
and spare parts thereof for domestic or interantional transport operations
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
9. Treaty-exempt services
10. Regional area headquarters
11. International Carriers
12. Printers or publishers
13. Senior Citizens and persons with disability
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
1. Sale of Goods to Senior Citizens and Persons with disability
-for ESSENTIAL goods only

Pinagpalit ka store is a business catering for the needs of seniors and persons with disabilities. It
had the following sales of goods during the month:

Senior Citizens PWDs

Vitamin supplements 20,000 30,000
Medical drugs 50,000 60,000
Eyeglasses 90,000 100,000
Kitchen supplies 200,000 100,000
Casket and urns 300,000 240,000
Memorial lot 300,000 300,000
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
1. Sale of Goods to Senior Citizens and Persons with disability
-for ESSENTIAL goods only

Pinagpalit ka store is a business catering for the needs of seniors and persons with disabilities. It
had the following sales of goods during the month:

Senior Citizens PWDs Senior Citizens PWDs

Vitamin supplements 20,000 30,000
Medical drugs 50,000 60,000
Eyeglasses 90,000 100,000
Kitchen supplies 200,000 100,000
Casket and urns 300,000 240,000
Memorial lot 300,000 300,000
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
2. Sales of Exempt goods- like agricultural and marine food products in thier ORIGINAL
state

Aldous owns a meat and fish outlet in the Baguio City public market. He had the
following sales during the month:

Sale of live hogs 20,000

sale of frozen carcass and meat 50,000
sales of fresh fishes 100,000
sale of dried/ smoked fish 60,000
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
2. Sales of Exempt goods- like agricultural and marine food products in thier ORIGINAL
state

Aldous owns a meat and fish outlet in the Baguio City public market. He had the
following sales during the month:

Sale of live hogs 20,000

sale of frozen carcass and meat 50,000
ALL Are exempt from business tax
sales of fresh fishes 100,000
sale of dried/ smoked fish 60,000
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
3. Sales of goods by Cooperatives

Cooperatives of any kind are exempt from business taxation, EXCEPT Electric cooperatives

NOTE: Such goods will be exempted if they transact business with their MEMBERS

4. Sales of Real Properties- the VAT exemption applies to:

a. Real property classified as capital assets of VAT taxpayers
b. Any real properties of non-vat taxpayers
c. Any real properties of persons not engaged in business.
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
5. Export sales by non-VAT persons

- the export sales of non-vat taxpayers are exempt from percentage tax. However, the
export sale of VAT taxpayers is TAXABLE to the Value Added Tax but at 0% Rate.

6. Treaty-exempt sales of goods, international agrrements or special laws

Examples of exempt parties under specials laws
a. PEZA Registered Enterprises
b. Asian Development Bank (ADB)
c. Philippine National Red Cross
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
IniwanKa Company, a non-VAT taxpayer, supplies the Asian
Development Bank (ADB) with office supplies. During the quarter, ADB
made total deliveries of supplies worth 500,000. is the transaction
exempt from taxation?
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
IniwanKa Company, a non-VAT taxpayer, supplies the Asian
Development Bank (ADB) with office supplies. During the quarter, ADB
made total deliveries of supplies worth 500,000. is the transaction
exempt from taxation?

Yes, the transaction is exempt from business transaction according to

the agreement between ADB and the Republic of the Philippines.
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
7. Tax-free exchange of property- the following exchange of properties are exempt
from business taxation:
a. Exchange of properties by a corporation in pursuant to a plan of merger or
consolidation.
b. Exchange of properties by a person alone, or together with others not exceeding
four, which resulted to the acquisition of control.
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
Pursuant to a plan of merger between Cha Eun Woo Company, a VAT registered taxpayer, and
Delulu Company, Cha Eun Woo Company shall surrender the following assets:
Cash 60,000
Receivables 50,000
Inventories 70,000
Property, plant and equipment 100,000

Cha Eun Woo Company shall receive 2,000,000 shares of stocks of Delulu Company which it plans
to distribute to its shareholders after which it shall cease to exist and operate as a legal entity. Are
all those assets from Cha Eun Woo Company exempt from VAT?
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
Pursuant to a plan of merger between Cha Eun Woo Company, a VAT registered taxpayer, and
Delulu Company, Cha Eun Woo Company shall surrender the following assets:
Cash 60,000
Receivables 50,000
Inventories 70,000
Property, plant and equipment 100,000

Cha Eun Woo Company shall receive 2,000,000 shares of stocks of Delulu Company which it plans
to distribute to its shareholders after which it shall cease to exist and operate as a legal entity. Are
all those assets from Cha Eun Woo Company exempt from VAT? Yes, ALL the assets are
exempt from VAT.
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
8. Sale of Gold to the Bangko Sentral ng Piilipinas (BSP) - the train law reclassified sale of
gold to the BSP from zero rated to exempt.

Longlong, is gold trader. He purchases gold and silver from electronic scrap metal refiners and
small-scale miners. He refined the gold and sold them to the BSP:

Sales of gold 400,000

Sales of silver 200,000

Is the sale of gold and silver are exempt from business tax?
 EXEMPT SALES OF GOODS OR
PROPERTIES
Mnemonic: SECRET TAX free Gold
8. Sale of Gold to the Bangko Sentral ng Piilipinas (BSP) - the train law reclassified sale of
gold to the BSP from zero rated to exempt.

Longlong, is gold trader. He purchases gold and silver from electronic scrap metal refiners and
small-scale miners. He refined the gold and sold them to the BSP:

Sales of gold 400,000

Sales of silver 200,000

Is the sale of gold and silver are exempt from business tax? Only the sale of GOLD should
be exempt from business tax whether Longlong is VAT or Non-VAT taxpayers.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
1. Schools - those educational institutions whether private or public are
exempt from business taxes if they were properly accredited by:
a. Department of Education (DEPED)
b. Commission on Higher Education (CHED)
c. Technical Education and Skills Development Authority (TESDA)
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
2. Employees
employer-employee relationship is not a business, hence it is
exempt from business taxes.

3. Agricultural Contract growers and millers - refers to persons

producing for others poultry, livestock, or other agricultural and marine
food products in their original state.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
Johnny Johnny Yes Papa was contracted by Purepork, a distributor of pork
and chicken meat products, to raise hogs and chicken. Johnny Johnny Yes
Papa shall be paid a fixed contract price for the undertaking. Johnny
Johnny Yes Papa is an agricultural contract grower. Is the contract price
received by Johnny Johnny Yes Papa from Purepork is exempt from
business tax?
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
Johnny Johnny Yes Papa was contracted by Purepork, a distributor of pork
and chicken meat products, to raise hogs and chicken. Johnny Johnny Yes
Papa shall be paid a fixed contract price for the undertaking. Johnny
Johnny Yes Papa is an agricultural contract grower. Is the contract price
received by Johnny Johnny Yes Papa from Purepork is exempt from
business tax? Yes, it exempt from business tax
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
4. Residential Leasing - Lease of residential unit with monthly rental not exceeding
P15,000

Residential units - refer to apartments and houses and lots used for residential
purposes, and building or parts or units thereof used as dwelling places such as,
dormitories, rooms and bed spaces, except, motels, motel rooms, hotels, and hotel
rooms, lodging houses, inns and pension houses.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
5. Cooperative Services- The gross receipts from sale of services by cooperatives
such as lending, marketing or multi-purpose cooperatives is exempt similar to the
rules discussed under sales of goods by cooperatives.

6. Hospitals - Medical, dental, hospital and veterinary services except those

rendered by professionals and sales of drugs by hospital drugstores are not
subject to business tax. This rule applies to all health services whether rendered
by a private, non-profit or government hospital. Health services rendered by
professionals, and the sale of drugs are VATABLE.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
Hayabusa Hospital, a private hospital, had the following receipts and sales during a
month:
Patient service revenue P10,000,000
IIn-patient sales 1,000,000
Laboratory services 500,000
Rent income on clinic space leased to doctors 800,000

Are all the transactions above exempt from business tax?

 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
Hayabusa Hospital, a private hospital, had the following receipts and sales during a
month:
Patient service revenue P10,000,000
IIn-patient sales 1,000,000 Essential part of hospital
Laboratory services 500,000 medical, hence exempt.
Rent income on clinic space leased to doctors 800,000

Are all the transactions above exempt from business tax? No, the rent income on
clinic space leased to doctors is not part of the listed exempt sales of
services hence, vatable.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
7. Home owner’s Association or condominium corporations
The TRAIN law exempted association dues, membership fees, and other assessments and charges
collected by homeowner's associations and condominium corporations on a purely REIMBURSEMENT
basis from business tax.

One homeowner's association (HOA) that operates in a subdivision. The HOA collects dues from its
members to cover the actual expenses of maintaining common areas (like streets, parks, and security).
Association Dues: Each homeowner contributes a set amount each month, which is used to pay
for security, street maintenance, and community events.
Reimbursement Basis: The HOA collects just enough money to cover these expenses and doesn't
aim to make a profit. The money is directly used for these services and there is no surplus or
mark-up making the transaction exempt from business tax (VAT or percentage tax).
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
8. Lease passenger or Cargo Vessels and Aircrafts, including engine equipment and spare parts thereof
for domestic or international transport operations

Dikanamahal Enterprise imports, sells and leases air and water crafts. During the quarter, it had the
following transactions: Lease Rentals
Yacht Р 2,000,000
Tanker 1,000,000
Roll-on Roll-off boat 20,000,000
Fishing boat 500,000
Private jets 50,000,000
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
8. Lease passenger or Cargo Vessels and Aircrafts, including engine equipment and spare parts thereof
for domestic or international transport operations

Dikanamahal Enterprise imports, sells and leases air and water crafts. During the quarter, it had the
following lease rentals
Yacht Р 2,000,000
Exempt from business tax
Tanker 1,000,000
Roll-on Roll-off boat 20,000,000
Fishing boat 500,000 Fishing boat and private jets are not intended for
Private jets 50,000,000 passenger or cargo, hence taxable.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
9. Treaty-exempt services - The receipts from services sold to entities which are
exempt under treaties or international agreements to which the Philippine government
is a signatory are sales of goods. exempt.

Example: A foreign airline, such as Singapore Airlines, provides a flight service from
Singapore to Manila. The transportation service provided by Singapore Airlines is
exempt from VAT in the Philippines due to the tax treaty between the Philippines and
Singapore.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS

10. Regional area headquarters - An RHQ serves as a supervisory, communications,

and coordinating center for the affiliates, subsidiaries, or branches of the multinational
corporation (MNC) in a specific region (such as Asia Pacific). RHQs do not directly
engage in business or derive income from local sources in the Philippines.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
11. International Carriers - The receipts from the transport of passengers by
international carriers originating from the Philippines going abroad is now exempt from
business tax under RA 10378. International carriers are air carriers or shipping carriers
owned by resident foreign corporations doing business in the Philippines.

12. Printers or publishers - The printing, or publication of books and any newspaper,
magazine, review, or bulletin which appear at regular intervals with fixed prices for
subscription and sale and which is NOT devoted principally to the publication of paid
advertisements is exempt.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
Sasaktan ka lang printing Press reported the following receipts from printing services:

Books 200,000
Newspapers 50,000
Tarpaulins and campaign ads 100,000

Are ALL the above sales exempt from VAT?

 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
Sasaktan ka lang printing Press reported the following receipts from printing services:

Books 200,000
Newspapers 50,000
Tarpaulins and campaign ads 100,000

Are ALL the above sales exempt from VAT? No, only the Books and newspapers
are exempt from VAT.
 EXEMPT SALES OF
SERVICES
Mnemonic: SEARCH2 VA TRIPS
13. Senior Citizens and persons with disability - Senior citizens and PWDs Senior
citizens and persons with disability are exempt from VAT on essential services
provided by the following covered establishment (such as but not limited to):
1. Lodging establishment, such as apartel, dormitory, motorist hotel, tourism inn,
pension house excluding long-term residency arrangements
2. Hospital and clinic
3. Restaurants such as eating places offering regular or special menus to the public
4. Medical, dental, diagnostic and laboratory fees and professional medical fees
 FILING OF VAT RETURN
What is a VAT Return?
A VAT return is a report filed with tax authorities that details
the VAT you’ve charged customers and the VAT you’ve paid to
suppliers.

It’s used to calculate the VAT you owe or the refund you’re
entitled to.
FILING OF VAT RETURN
Why filing correctly matters?
Ensures compliance with tax regulations.

Avoids penalties and interest charges for late or incorrect

filings.

Keeps your business in good standing with tax authorities.

 FORM 2550M
Monthly VAT Declaration

FORM 2550Q
Quarterly VAT Declaration
 2550M 2550Q
Purpose To report monthly To report VAT
VAT transactions and transactions for the
payments quarter

Tax Covered Period 1 month 3 months

Frequency of filing Monthly Quarterly

Deadline of filing 20th day following 25th day following

the close of the the close of the
taxable month taxable quarter
 REVENUE MEMO CIRCULAR
NO. 5-2023
In line with TRAIN LAW, amending certain provisions
which states that beginning January 1, 2023, the filing
and payment required shall be done within 25 days
following the close of each taxable quarter.

FORM 2550M is no longer required.

 QUESTION
Do non-VAT taxpayers still need to
file BIR Form 2550Q?
 QUESTION
Do non-VAT taxpayers still need to
file BIR Form 2550Q?

NO. Only for VAT-registered taxpayers

If you are a Non-VAT taxpayer, you are usually registered
under Percentage Tax,
THANK YOU!
Tutors:
AYDALLA, Jackielou D.
HAYOHAY, Daniela Ll.
LLANDELAR, Jasmine L.
LLORERA, Flory Mae L.
MILALLOS, Daniela A.
NAPAY, Amor B.
VILLA, Krissa C.