CORPORATE INCOME TAXATION
What is corporation?
For purposes of taxation, corporation includes
partnerships, no matter how created or organized, joint
accounts, associations or insurance companies.
UNREGISTERED PARTNERSHIP X CO-OWNERSHIP
CO-OWNERSHIP- Tax exempt, but will become taxable if
it is converted to UNREGISTERED PARTNERSHIP.
CO-OWNERSHIP converted to UNREGISTERED
PARTNERSHIP
When?
If the properties and income are used as common fund
with intention to produce profits.
After the co-ownership was partitioned, the shares of the
heirs are held under a single management for profit
making.
JOINT ACCOUNTS AND JOINT VENTURES FORMED
FOR PROFITS
-Taxable
These are Joint Emergency Operation without legal
personality. It operates the business affairs of the two
companies as though they constitute a single entity
thereby obtaining substantial economy and profit in
operation.
JOINT STOCK COMPANIES
TAXABLE
They are generally classified as a partnership possessing
some of the characteristics of a corporation.
They appear to be like corporations to the extent that they
have capital stock but when capital is divided or made
transferable even without the consent of the co partner,
they partake the nature of partnership.
NOT CONSIDERED CORPORATION
For income tax purposes
(TAX EXEMPT ENTITIES)
Section 22 (B) of the NIRC
1. Joint Construction Venture
2. General Professional Partnership
3. Joint venture for engaging in petroleum, coal,
geothermal and other energy operations
pursuant to a consortium agreement with the
government.
4. Tax exempt GOCC- SSS, GSIS, PhilHealth
(PHIC), Pag-IBIG and PCSO
EXEMPTIONS FROM TAX ON CORPORATIONS
11 CORPORATIONS ARE TAX EXEMPT
Section 30, NIRC
1. Nonprofit labor, agricultural or horticultural
organizations.
2. Non-stock/Non-profit mutual savings bank or Non-
stock/Non-profit cooperative bank.
3. Associations, orders, beneficiary societies operating for
the exclusive benefits of their members.
4. Cemetery company owned and operated exclusively for
the benefit of its members.
5. Non-stock corporation or association organized and
operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes, or for the rehabilitation of
veterans, provided that no individual person owns its
assets or no individual person receives benefit on its
earnings.
6.Nonprofir business league, chamber of commerce or
board of trade.
7.Nonprofit civic league or organization operating
exclusively for the promotion of social welfare
8. Non-stock and Non-profit educational institutions
9. Government educational institutions.
10. Farmers' or other mutual typhoon or fire insurance
company, mutual ditch or irrigation company, mutual or
cooperative telephone company, or like organization of a
purely local character, the income of which consists solely
of assessments, dues, and fees collected from members
for the sole purpose of meeting its expenses; and
11. Associations of farmers, fruit growers, and the like
whose primary function is to market the product of their
members.
BUT, the income of whatever kind and character of the
foregoing organizations from any of their properties, real
or personal, or from any of their activities conducted for
profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code.
MAJOR GROUPS OF CORPORATION
FOR INCOME TAX PURPOSES
(Sources, Tax Base, Tax Rate)
A. NON RESIDENT FOREIGN CORPORATION
(Sec22(I))
Source: WITHIN
Tax Base: Gross Income
Tax Rate: 35% effective July 01, 2005
30% effective January 1, 2009
SPECIAL NON RESIDENT FOREIGN
CORPORATION
1. Non Resident Lessor of Cinematographic Film-
25% based on gross income derived from within the
Philippines.
2. Nonresident Owner or Lessor of Vessels
Chartered by Philippine Nationals- 4.5% based on
gross rentals derived from within the Philippines
3. Nonresident Owner or Lessor of Aircraft,
Machineries and Other Equipment- 7.5% based on
gross rentals derived from within the Philippines
SUMMARY of INCOME TAX RULES FOR NRFC
TRANSACTIONS
1.On sale of shares of stock of a domestic Corporation not
listed and traded thru a local stock exchange, held as
capital assets: TRAIN- Flat Rate 15%
2. Interest on Foreign Loans- FT of 20%
3. Dividend from Domestic Corporation- FT 15%
4. Gross Income from Sources within the
Philippines- FT 30%
Note: Consider also the Tax Rates of those
SPECIAL NON RESIDENT FOREIGN CORPORATION
 TAX SPARRING CREDIT (28(B)(5b)
The Situation: NRFC received a dividend from Domestic
Corporation and subject to 15% Final Withholding Tax
Rate.
Why 15%? To attract foreign investors.
Should be TR 30%-15%= 15% Spared Tax Rate
Condition: The Foreign Government must allow Tax
Credit in those taxes deemed paid to the Philippines by
foreign government/NRFC
Q: Is there need of proof of the Tax Credit?
A: No need of proof of actual amount granted as tax credit.
As long as the Foreign Government allowas tax credit, it
will suffice.
B. RESIDENT FOREIGN CORPORATION (22H)
SOURCE: WITHIN
TAX BASE: Taxable Income
TAX RATE: 35% July 01, 2005
30% January 1, 2009(RA9337)
SPECIAL RESIDENT FOREIGN CORPORATION
1. International Carriers or International Shipping- 2.5%
based on income derived from within—based on Gross
Philippine Billings
2.Offshore Banking Unit- 10% income WITHIN Gross
Onshore Income
3. Offshore Currency Deposit Unit- 10% income within
Gross Onshore Income
Except: NON-RESIDENTS [Individual or
Corporations (28(7)(b last par)]
1.On sale of shares of stock of a domestic Corporation
not listed and traded thru a local stock exchange, held as
capital assets: TRAIN- Flat Rate 15%
2. From sources WITHIN the Philippines on
PASSIVE Income of:
-Interest under the expanded foreign currency deposit
system; TRAIN 15%
-Interest on any currency bank deposit, yield from deposit
substitute, trust fund and similar arrangement, royalty-
FT of 20%
3. Dividend from Domestic Corporation- Exempt
4. Branch Profit remittance tax- FT of 15%, except profits
derived from activities registered with the Philippine
Economic Zone Authority (PEZA)
5. Taxable Income (NET) from all sources WITHIN the
Philippines- Normal Tax 30%
SUMMARY OF INCOME TAX RULES FOR RFC
Note: But, beginning with the 4th year from start of
operations, whichever is higher of:
NORMAL TAX 30%
MINIMUM CORPORATE INCOME TAX on MCIT Gross
Income from WITHIN the Philippines -2%
Note: Consider also the Tax Rates of those SRFC
What are considered BRANCH PROFIT?
-gains, profits, effectively connected with the conduct of
trade or business in the Philippines.
But, income or profit or gain derived from DIRECT
INVESTMENT of mother corporation is not considered
as Branch Profit because the same were not effectively
connected with the conduct of business in the
Philippines.
C. DOMESTIC CORPORATION (22C)
SOURCE: WITHIN and WITHOUT
TAX BASE: Taxable Income
TAX RATE: 35%- 2005 30%- 2009
SPECIAL DOMESTIC CORPORATION
1. Private Educational Institution
2. Non-profit Hospital
Tax Rate is 10% on their Taxable Income provided the
Gross Income from unrelated trade, business or other
activity DOES NOT EXCEED 50% of the Total Gross
Income.
Tax Rate is 30% of the Taxable Income if its income from
unrelated trade or business EXCEEDS 50% of the Total
Gross Income.
What is unrelated trade, business or other activity?
The conduct of which is not substantially related
to the exercise or performance by such educational
institution of its educational purpose or function.
What are those related activities?
Include income derived from auxiliary activities-
school owned canteen, cafeteria, dormitory and
bookstore within the school premises.
TRANSACTIONS
1. On sale of shares of stock of a domestic Corporation not
listed and traded thru a local stock exchange, held as
capital assets: TRAIN- Flat Rate 15%
If listed- .06% Gross Selling Price
2. On sale of land and/or building held as capital assets
on the GROSS SELLING PRICE or CURRENT FMV
prevailing at the TIME of SALE, whichever is HIGHER:
Capital Gain Tax Final Tax of 6%
3. From sources WITHIN the Philippines on PASSIVE
Income of:
-Interest under the expanded foreign currency deposit
system; TRAIN 15%
-Interest on any currency bank deposit, yield from deposit
substitute, trust fund and similar arrangement, royalty-
FT of 20%
4. Dividend from Domestic Corporation- Exempt
5. Taxable Income (NET) from all sources WITHIN the
Philippines- Normal Tax 30%
Note: But, beginning with the 4th year from start of
operations, whichever is higher of:
NORMAL TAX 30%
MINIMUM CORPORATE INCOME TAX on MCIT Gross
Income from WITHIN the Philippines -2%
6. In lieu of No.5 (30% on Taxable Income) and
beginning with the year 2000
GROSS INCOME TAXATION on Gross Income-
15%
Note: Consider also the Tax Rates of those SDC
So, a DC have the option between GIT and NIT.
However, once a DC opted for GIT- such option shall be
irrevocable for 3 consecutive years.
MINIMUM CORPORATE IT
DC- 27(e); FC (28,A,2)
When Corporation covered by MCIT- on the 4th year of
its business operations. ( reckoning period of start of
business operations- year when the corp. was registered
with the BIR).
PURPOSE: to forestall the prevailing practice of corps.
In over claiming deductions. (to reduce their IT
payments)
Computation- equal to 2% of the GI of the corp. at the
end of the taxable year. (GI- means GROSS Sales less sales
returns, discounts, allowances and cost of goods sold.)
When is MCIT reported and Paid?
Paid on annual basis. It is not computed nor paid
on quarterly basis.
It is reported under the ANNUAL FINAL
ADJUSTMENT Income Tax RETURN which corps
are required to file on the 15th of the fourth month
following the close of each taxable year.
CARRY FORWARD provision under the MCIT
(27,E,2) Any excess of the MCIT over the normal income
tax may be carried forward on an annual basis and be
credited against the normal income tax for the 3
immediately succeeding taxable years.
Reasonable needs of the business- determined by the
IMMEDIACY TEST. -
-Immediate needs of the business, including reasonably
anticipated needs AND there should be PROOF of
immediacy or direct correlation of anticipated needs.
Reasonable needs
1.upto 1005 of the paid up capital of the corp. for reserve
purposes.

2014 2015 2016 2.for definite corporate expansion projects as approved by

NIT 50k 60k 100k the BOD.
MCIT 75k 100k 60k
To be paid 75k 100k 100k 3.for building, plants or equipment acquisition as
Excess of 25,000 40,000 100,000 approved by the BOD.
MCIT less 25,000
and 40,000
4.for compliance with any loan covenant or pre-existing
Net obligation established under a legitimate business
amount to 75k 100k = 35,000 agreement.
be paid
5.required by law or applicable regulations to be retained
I will send the photo for the next table ta bka han by the corp. or in respect of which there is legal
maawatan .huehue prohibition against its distribution.

Suspension of the payment of MCIT- The Sec. of 6.Subsidiaries of FC: investment in the Phil. As proven by
Finance, upon recommendation of the BIR corporate records.
commissioner, may suspend the imposition of the MCIT
on a corporation in any of the following cases: IAET shall not apply to publicly held corporations

1-sustained losses from prolonged labor dispute
2-Force majeure or fortuitous event
3-legitimate business reverses
2011 BAR : Is a corporation which is exempted from the
MCIT automatically exempted from the regular
corporate income tax?
- Propriety/private educational institutions.
- banks and nonbank financial intermediaries
- Insurance companies
CLOSELY-HELD CORPORATIONS- at least 50% in value
of the OCS or at least 50% of the total combined coting
power of all classes of stock entitled to vote is owned
directly or indirectly by or for not more than 20
individuals.

IMPROPERLY ACCUMULATED EARNINGS TAX NOTA BENE:  DC that do not fall under the definition
(29) of Closely-held corporations are publicly-held
corporations. But a branch of a foreign corporation is a
From retained earnings-dividends will be RFC, not domestic, therefore it is not covered under the
declared- divides will be taxed but the corporation regulation.
allows the earnings to accumulate so the shareholders are
spared of the burden of paying dividend tax. IAET shall not apply to

Improperly accumulated Earnings tax (IAET) – 1.non-taxable joint ventures

serves as penalty. The corp. should be penalized for
improperly accumulating corporate profits and earnings.
-A form of deterrence to this kind of tax avoidance 2.GPP
scheme.
3.enterprise duly registered with PEZA and other
RATE: 10% of the improperly accumulated taxable companies registered under special economic zone
income. (if accumulation of the earnings and profits is
unreasonable if it is not necessary for the purpose of the 4.taxable partnerships
business.)
WHAT IS BUSINESS?
Business or in the course of trade or business means
The regular conduct or pursuit of a commercial or
economic activity, including transactions incidental
thereto by any person or government entity.
Business taxes are excise taxes imposed on onerous
transfers of goods, property or services done in the
normal course of business.
These are sometimes referred to as transaction taxes
These are also taxes on productivity/importation of “sin”
products
Requisites of business to be subjected to business tax:
1. The activity should be a commercial or economic
activity, but with exceptions like
( not an economic activity but there is a business
tax)
a commercial or economic activity where the
purpose is PROFIT or INCOME
A. An importation of goods for personal use is
subject to Value-added-tax. VAT is business
tax
B. An overseas communication, even if not
related to business is subject to the
percentage tax called overseas
communications tax percentage tax is a
business tax
2. There should be regularity in the activity, BUT
with exceptions like:
(not a regular activity but there us business tax)
a regular activity is an activity involving more than one
isolated transaction. It requires repetition and continuity
of action.
A. Services rendered in the Philippines by non-
resident foreign persons shall be considered as
being rendered in the course of trade or business:
B. Isolated transactions may be subjected to VAT or
percentage tax.
The three major business taxes in the national internal
revenue code:
-Value Added Tax
-Percentage tax or general consumption tax
-Excise Tax
To differentiate
Excise tax is on the production or importation of “sin”
products, WHILE, VAT and or Other percentage tax
(OPT) are on transfer of goods or services in the conduct
of business.
A value added tax is an indirect tax imposed on the Gross
selling price or gross receipt derived from sale, barter, or
exchange of goods, properties and services or the lease of
goods and properties in the course of trade or business
and on importations
Business that are exempted from VAT or
percentage taxes (regardless of annual gross
sales sales or receipts) section 109
(A) Sale or importation of agricultural and marine food
products in their original state, livestock and poultry of or
king generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic
materials therefor.
Products classified under this paragraph shall be
considered in their original state even if they have
undergone the simple processes of preparation or
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Polished
and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt and copra shall be considered in
their original state;
(B) 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 generally
considered as pets);
(C) Importation of personal and household effects
belonging to the residents of the Philippines returning
from abroad and nonresident citizens coming to resettle
in the Philippines: Provided, That such goods are exempt
from customs duties under the Tariff and Customs Code
of the Philippines;
(D) Importation of professional instruments and
implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel,
aircraft, machinery other goods for use in the
manufacture and merchandise of any kind in commercial
quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or
exchange, accompanying such persons, or arriving within
ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner,
that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide;
TRAIN: D ―Importation of professional instruments
and implements, tools of trade, occupation or
employment, wearing apparel, domestic animals, and
personal household effects 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 for barter
or sale, accompanying such persons, or arriving within
reasonable time: Provided, that the Bureau of Customs
may, upon the production of satisfactory evidence that
such persons are actually coming to settle in the
Philippines and that the goods are brought from their
former place of abode; Provided, further, that vehicles,
vessels, aircrafts, machineries and other similar goods for
use in manufacture, shall not fall within this classification
and shall therefore be subject to duties, taxes and other
charge
E) Services subject to percentage tax under Title V;
(F) Services by agricultural contract growers and milling
for others of palay into rice, corn into grits and sugar cane
into raw sugar;
(G) Medical, dental, hospital and veterinary services
except those rendered by professionals.
(H) Educational services rendered by private educational
institutions, duly accredited by the Department of
Education(DepED), the Commission on Higher
Education (CHED), the Technical Education and Skills
Development Authority (TESDA)and those rendered by
government educational institutions;
(I) Services rendered by individuals pursuant to an
employer-employee relationship;
(J) 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;
(K) Transactions which are exempt under international
agreements to which the Philippines is a signatory or
under special laws, except those under Presidential
Decree No. 529;
(L) Sales by agricultural cooperatives duly registered with
the Cooperative Development Authority to their members
as well as sale 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;
(M) Gross receipts from lending activities by credit or
multi-purpose cooperatives duly registered with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non- electric and non-
credit cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital
contribution of each member does not exceed Fifteen
thousand pesos (P15, 000) and regardless of the
aggregate capital and net surplus ratably distributed
among the members;
(O) Export sales by persons who are not VAT-registered;
(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 Republic Act No. 7279,
otherwise known as the Urban Development and Housing
Act of 1992, and other related laws, residential lot valued
at One million pesos (P1,500,000) ] and below, house and
lot, and other residential dwellings valued at Two million
five hundred thousand pesos (P2, 500, 000) and below:
Provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amount herein stated shall
be adjusted to their present values using the Consumer
Price Index, as published by the National Statistics Office
(NSO);
TRAIN: ―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 socialized
housing residential lot valued at P1,500,000 and below
house and lot and other valued at P2,500,000 and below
Beginning January 1, 2021:
 The vat exemption shall not anymore apply to:
-sale of low cost housing
-sale of residential lot
 The threshold selling price amount for sale of
house and lot and other residential dwellings
shall be P2,000,000
Every 3 years the threshold amount shall be adjusted to
its present value using the consumer price index, as
published by the PSA
(Q) Lease of a residential unit with a monthly rental not
exceeding Ten thousand pesos (P10, 000): Provided, That
not later than January 31, 2009 and every three (3) years
thereafter, the amount herein stated shall be adjusted to
its present value using the Consumer Price Index as
published by the National Statistics Office (NSO);
TRAIN: Q) Lease of residential unit with monthly rental
not exceeding ₱15,000.
(R) 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;
Rule on gross receipts om rent of residential units
 If the monthly rental does not exceed 12,800(now
15,000) per unit per month, regardless of the
aggregate annual rentals, the lessor shall be
exempt from VAT
 if the monthly rental exceeds P12,800(now
P15,000) per month per unit but the aggregate
annual rentals do not exceed P1,919,500, the
 lessor is exempt from VAT the lessor however is
subjected to percentage tax
VAT THRESHOLD NOW P3,000,000
 if the monthly rental exceeds 12,800(now
P15,000) per month per unit and the aggregate
annual rentals exceed P1,919,500 the lessor is
subject to 12% VAT
S. Sale, importation or lease of passenger or cargo vessels
and aircraft, including engine, equipment and spare parts
thereof for domestic or international transport
operations;
T. Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport
operations;
U. Services of bank, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank
financial intermediaries;
TRAIN: additional provision
xxx provided, that the fuel, foods, and supplies shall be
used for international shipping or air transport
operations
V. 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 P1,919,500.00
(exempt from VAT but subjected to 3% percentage tax.)
TRAIN: Additional exempt transactions-
(W) Sale or lease of goods and services to senior citizens
and persons with disabilities;
NIRC: (W) Sale or lease of goods or properties or the
performance of sevices other than the transactions
specifically mentioned as VAT-exempt, the gross annual
sales and/or receipts do not exceed the amount of
₱1,919,500 (as amended).
(X) Transfer of property pursuant to Section 40 (C)(2) of
the NIRC, as amended;
(Y) Association dues, membership fees, and other
assessments and charges collected by homeowners
associations and condominium corporations;
(Z) Sale of gold to the BSP
(AA) Sale of drugs and medicines prescribed for diabetes,
high cholesterol, and hypertension beginning January 1,
2019
Now (BB) 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
₱3,000,000.
R.A10963: VAT threshold P3,000,000
Rules in business taxes
Businesses NOT expressly mentioned in letter A to U (per
RA 10962 now includes W,X,Y,Z and AA) of section 109
of NIRC which have gross sales not exceeding one million
five hundred thousand pesos (P1,919,500) now
P3,000,000 shall be:
> exempt from the value added tax, BUT…
> subject to a 3% percentage tax EXCEPT if
i. a different percentage tax applies
ii. taxpayer opted to be a value added tax payer
Manufacturers or importers who are subject to the excise
taxes also pays either:
VAT or The 3% percentage tax (if the sales did not exceed
P1,919,500)
Excise tax are imposed on:
1. manufacturers or
2. importers of any of the following categories of goods
or articles:
-distilled spirits
-wines
-fermented liquors
-tobacco products
-cigars
-automobiles
-manufactured fuel oils
-mineral products
-non-essential goods
-cigarettes
VAT is an indirect tax imposed on the gross selling price
or gross receipts derived from sale, barter, or exchange of
goods, properties and services or the lease of goods and
properties in the course of trade or business and on
importations
BQ: What are the characteristics of VAT?
Nature and characteristics of the VAT
1. Value added tax is a tax on consumption
2. Levied on the sale, barter, exchange or lease of
goods or properties and services in the
Philippines and the importation of goods into the
Philippines.
3. Seller is the one statutorily liable for the payment
of tax, but the amount of tax may be shifted or
passed on the buyer, transferee, or lessee of the
goods or properties of services.
Who are liable for the payment of VAT?
Persons liable to VAT
Sec 105 to 108- in general , any person engaged in the
business of selling or leasing goods, properties or services
with annual sales or gross receipts of more than
P1,919,500(now P3,000,000) is liable to VAT of 12%
based on his sales or gross sales gross receipts as
amended.
Registered person under the VAT system- any person
who is registered under the value added tax system in the
course of trade or business, sells, barters, exchanges
goods or properties, renders services, and leases shall be
subjected to 12% VAT regardless of the amount if his gross
annual sales or receipts
If a person is VAT-registered, he is entitled to have an
Input Tax as reduction from his Output Tax.
Non-VAT registered person under the value added tax
system- Any person engaged in the business of selling or
leasing goods, properties, or services subject to VAT, and
whose gross sales or receipts during the year or in any 12-
month period exceed P1,919,500(now P3M) whether or
not registered under the value added tax system.
If a person is not VAT-registered, he is not allowed to have
an Input tax. He is required to pay 12% VAT or the total
amount of output tax
Franchise grantees of radio/ television broadcasting,
whose annual receipts for the preceding, calendar year do
not exceed P10,000,000 but opted to register under the
VAT system. Once the option is exercised it shall not be
revoked.
However, if the annual receipts for the preceding calendar
year exceed P10,000,000 the company is automatically
subjected to a 12% VAT whether VAT-registered or not.
Importers of goods- any person who imports goods
subject to value added tax, whether or not in the course of
trade or business. (sec.107(a))
Except in cases of tax free importation of goods.
Who are subject to the VAT?
Any person who:
a Sells barters or exchanges goods or properties in the
course of trade or business
b Sells services in the course of trade or business; or
c Imports goods, whether or not in the course of trade
or business
Registration of business
 Every taxpayer subject to the VAT must register with
the BIR as a VAT taxpayer
 Pay the annual registration fee of P500 for every
separate and distinct establishment, including facility
types (sales outlet, places of production, warehouse
and storage places) where the business is conducted
For VAT exempt persons, they must also register
as a non-VAT taxpayers
Registration of VAT
> Mandatory section 236 (G)
-When the business gross sales or receipts for the past 12
months, other than those exempt under section 109 of the
NIRC letter A to U HAVE EXCEEDED P1,919,500 (NOW
P3M)
-When there are reasonable grounds to believe that his
gross sales or receipts for the next 12 months will exceed
P,919,500(now P3M)
-Any person who is not required to register as a VAT
taxpayer because his sales in a 12 month period do not
shall not exceed P1,919,500 (now 3M) may register for the
VAT
>Optional registration section 236 (H)
INVOICES AND RECEIPTS
A taxpayer who is in business should have his invoices and
receipts registered with the BIR.
If the taxpayer is a VAT taxpayer the invoices and receipts
shall clearly show that he is a VAT taxpayer
The invoicing requirement is intended to show the total
amount chargeable to the buyer separately indicating the
purchase price portion from the VAT portion of the total
invoice amount.
BASIC THINGS TO BE REPORTED IN THE
INVOICE OF RECEIPTS;
> A statement that the seller is VAT-registered person
followed by the TIN
>the amount of tax shown as a separate item.
>the word “VAT-exempt sale” written or printed
prominently if sale is VAT-exempt.
>the word “zero rated sale” written or printed
prominently if sale is subject to zero percent.
>option to issue combined or separate invoices receipts of
sale on a combination of VAT liable and VAT exempt sale.
>date of transaction quantity unit cost and description if
the goods or properties or the nature of the service
>for sale of VAT-registered persons amounting to P1,000
or more indicate the name, business style, address and
TIN of the purchaser
TAX LIABILITY FOR ISSUING ERRONEOUS
INVOICE OR RECEIPTS
 A non VAT person who issues VAT invoice/official receipt
shall have the following penalties:
 Percentage taxes applicable to his transaction
 VAT due on the transaction under sec.106 or 108 of the
tax code without the benefit of any input tax credit and
 50% surcharge under sec.248 (B) of the tax code
Objects of VAT
- Sales of goods (actual sales or deemed sales)
-Gross receipts (sale of services or lease)
-Importation (either for personal or business use)
The sales of goods or services should be made in the
PHILIPPINES to be subjected to VAT
TAX BASE OF OUTPUT VAT
x The objects of business tax may be based on:
a) gross selling price; or
b) gross receipts.
VALUE ADDED TAX ON SALE OF GOODS and
PROPERTIES
Tax base: Gross selling price
Considered as the amount of gross selling price
The taxable base for the sales of goods is the gross selling
price which refers to the total amount of money or its
equivalent which the purchaser give up as a sacrifice
including excise tax, if any, but excluding VAT.
Gross selling price shall include:
> charges for packing delivery and insurance
> excise taxes if goods are subject to excise tax
Allowable deductions from gross selling price
Sales returns and allowances are deductible from
recorded gross sales or receipts if a proper credit or refund
was made during the month or quarter.
Sales discounts may only be deducted from gross
sales or receipts within the same month/quarter
it was given if all of the following conditions are
met:
>> it is determined and granted ate the time of sale
>> the discount is expressly indicated in the invoice
>> the amount thereof should form part of the gross sales
duly recorded in the books and
>> the granting of the discount does not depend on the
happening of a future event.
For business tax computation, sale becomes taxable
when:
Gross selling price for the sale of goods
The point of taxation is the period when the sale was
made regardless of whether it is collected or not
PROOF of the tax base of business tax
A vat-registered person shall issue:
> a vat invoice for sale of goods or properties and (point
of taxation is when sale is made)
>vat official receipt for sale of services or lease of goods or
properties (point of taxation is when COLLECTION IS
MADE)
VAT ON SALE OF GOODS AND PROPERTIES
TAX rates:
a. 12% of the gross selling price
b. 0% of the gross selling price if:
A. EXPORT SALE SEC 106 (2)(A)
Section 106 (A)(2)
Zero-rated sale of goods or properties
1.The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement, and paid for in acceptable foreign
currency or its equivalent in goods or services, and
accounted for in accordance with the rules of the BSP;
TRAIN: The following sales by VAT- registered persons
shall be subject to zero percent 0% rate:
1. The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement, and paid for in acceptable foreign
currency or its equivalent in goods or services, and
accounted for in accordance with the rules of the BSP;
2. Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing,
processing, packaging or repackaging and paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP;
3. Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing,
processing, packaging or repackaging and paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP;
Sale of gold to BSP;
TRAIN: Sale of raw materials or packaging materials to
a nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing,
processing, packaging or repackaging and paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP
Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed seventy
percent (70%) of total annual production;
5. Those considered export sales under Executive Order
No. 226, otherwise known as the Omnibus Investment
Code of 198, and other special laws;
TRAIN: 5. Those considered export sales under
Executive Order No. 226, otherwise known as the
Omnibus Investment Code of 198, and other special laws;
and
6. The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
international air-transport operations;
TRAIN: The sale of goods, supplies, equipment and fuel
to persons engaged in international shipping or
international air-transport; provided that the goods,
supplies, equipment and fuel have been sold and used for
international shipping and air-transport operations
enhanced vat refund system that grants refunds of
creditable input tax within 90 days from the filing of the
vat refund application with the Bureau
• All pending VAT refund claims as of December 31, 2017
shall be fully paid in cash by December 31, 2019.
TRAIN: Deleted provision:
The following shall no longer be subject to 0% VAT:
1. Sale of gold to BSP
2. Foreign-currency denominated sales
B. FOREIGN CURRENCY DENOMINATED SALE
Sale to non-residents of goods (except automobiles and
non-essential goods subject to excise taxes) assembled
and manufactured in the Philippines, and paid in
acceptable foreign currency and accounted for in
accordance with the rules and regulation of the bsp
C. SALES TO PERSONS OR ENTITIES WHOSE
EXEMPTION under special laws or international
agreement to which the law Philippines is a signatory
effectively subjects to zero rate sec 106 (2)(c)
TAX BASE X TAX RATES
GROSS SELLING PRICE X 12% 0R 0%
= VAT OUTPUT TAX
OUTPUT TAX- is the VAT due on the sale or lease of
taxable goods or properties or services by any registered
person or any person required to register under sec 236
The amount is reduced by input tax if any to arrive at the
net VAT payable
If there is no creditable input tax, the entire amount of the
output tax becomes the VAT payable
Transactions deemed SALE:
1 CONSUMPTION OF INVENTORY-goods originally
intended for sale but used or consumed for personal use
by the taxpayer is considered deemed sale.
2 DISTRIBUTION TO STOCKHOLDERS-transfer of
inventory to shareholders as share in the profits of a VAT-
registered person is considered as transactions deemed
sale
3 DISTRIBUTION TO CREDITORS-Transfers of
inventory in payment of debts constitute transactions
deemed sale
4 CONSIGNMENT OF GOODS-is considered
transaction deemed sales if actual sale is not made within
60 days following the date such goods were consigned
5 Retirement from business- the merchandise
inventory left at the retirement of business is deemed sold
for VAT purposes
> for transactions deemed sale the taxable base is” market
value” of such goods as of the occurrence of the sale
transaction considered as sale.
>Where the gross selling price is unreasonably lower than
the actual market value, the commissioner shall
determine the appropriate tax base for 12% VAT
>the gross selling price is unreasonably lower than the
actual market value if it is lower by more than 30% of the
actual market value of same goods of the same quantity or
quantity sold in the immediate locality or the nearest date
of sale
VALUE-ADDED TAX ON IMPORTATION OF
GOODS
all importation of goods in the Philippines are subject to
VAT, even if such goods are not intended to be sold or
used for business activities,
. . . except those mentioned under Section 109 of NIRC. (A
to U, with RA 10963, W,X,Y,Z and AA)
TAX BASE and TAX RATE, Section 107A, NIRC
TAX RATE= 12%
 value used by the Bureau of Custom in determining the
tariff and custom duties, plus custom duties and excise
taxes, if any, and other charges, paid by the importer prior
to the release of such goods from the custody of the BOC.
=VAT Output/Output Tax ((A)[3]{b, 3rd par)
Transfer of Goods by Tax-Exempt Persons (In
cases of Tax-Free Importation)
Sale or exchange of tax-free goods to non-exempt person
in the Philippines is taxable with Internal Revenue Taxes
against the purchaser, transferee or recipient who shall be
considered as importer thereof. (107B, NIRC)
All subjects 12% VAT Creditable As Input VAT
1. Importation by VAT person for business use YES
2. Importation by VAT person for personal use NO
3. Importation by non-VAT person for business NO
4. Importation by non-VAT person for personal use NO
OBJECTS OF VAT
x Sales of goods (actual sales or deemed sales)
x Gross receipts (sale of services or lease)
x Importation (either for personal or business use)
The sales of goods or services should be made in the
Philippines to be subjected to VAT.
VALUE-ADDED TAX ON SALE OF SERVICES and
USE/LEASE OF PROPERTIES
Requirements for Value-Added Taxability of
Service Transactions (108(A)
• The service must be performed or is to be performed in
the course of business in the Philippines.
• The service is rendered for valuable consideration
actually or constructively received.
• The service rendered is not exempt from VAT under the
Tax Code, other special laws or international agreement.
• TAX BASE= GROSS RECEIPTS
Receipts becomes taxable when…
Gross receipts for rendering of services
The point of taxation is the period when the collection was
made, regardless of whether it is earned or not.
AMOUNT CONSIDERED AS GROSS RECEIPTS
x Taxable based on services does not include receivables.
It includes amounts billed and collected to clients
intended to recover cost and expenses including profits.
(VAT Ruling 111-88)
TAX RATES
A. Twelve percent (12%) of the gross receipts;
B. Zero percent (0%) of the gross receipts on the following
sale or exchange of services:
all kinds of services performed in the Philippines
are subject to VAT at rate of 12%, except those which are
classified and qualified as Zero-rated or VAT-exempt
transactions.
Common Carriers by Air and Sea
Common carriers by air and sea relative to the transport
of passengers and cargoes within the Philippines is
subject to 12% VAT.
But in Section 108(B)(6), as added by R.A. No. 9337---
transport of passengers and cargo by air or sea vessels
from the Philippines to a foreign country shall be subject
to zero (0%) rate.
VAT on Professional Fees
As a rule, earnings from a practice of profession
(including services rendered by doctors of medicine and
lawyers) will be subject to a 12% VAT if:
• The professional is a VAT-registered person, or
• Not VAT-registered but his total gross receipts
exceed P1,919,500 per year. (R. A. 9337)
*TAX BASE (gross receipts) x TAX RATES (12% or
0%)=VAT Output/Output Tax
TAX CREDITS
CREDITABLE INPUT TAX or VAT INPUT
Input VAT
Input tax (Input VAT) is the value-added tax due paid by
a VAT-registered person in the course of his trade or
business on importation of goods or local purchases of
goods or services, including lease or use of property from
VAT-registered person.
TAX TREATMENT OF INPUT VAT
-If paid by the VAT registered person in the conduct of his
business, it is allowed as tax credit against his output VAT.
-If paid by non-VAT person, it is part of his expense
(capitalized if pertaining to capital goods).
TAX TREATMENT OF EXCESS CREDITABLE
INPUT VAT
-If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters.
WHAT ARE THE INPUT TAXES?
Input Taxes are the value added taxes paid on local
purchases and importation of goods FOR:
1.sale So, the VAT is computed as: 120,000 x 12/112
P 12,857.14
2.conversion into or intended to form part of a finished NET AMOUNT (120,000-12,857.14) P107,142.86
product for sale, including packaging materials TOTAL AMOUNT IN THE INVOICE P120,000.00
3.use as supplies Mr. DEE LAH TAH purchases sardines from fishermen
4.use in trade or business, for which depreciation or and processes them into canned sardines called “ BUBOY
amortization is allowed for income tax purposes, SARDINES”. Going to processing in a certain taxable
except automobiles, aircrafts and yachts. period were the following purchases, value added tax not
included:
5. purchases of real property;
Fish from fishermen P 100,000.00
6.purchases of services Tin Cans P 20,000.00
Tomato paste in cans P 5,000.00
7.Presumptive Input Input Tax Olive oil in plastic bottles P 2,500,00
8.Transitional Input Tax Pepper from farmers P 1,800.00
Paper labels from printers P 500.00
*TAX BASE (VALUE PAID on PURCHASES and
IMPORTATION of GOODS) x TAX RATES (12%) =VAT
Input/Input Tax Sales during the period, value added tax not included,
amounted to P400,000.00.
What is a presumptive Input Tax?
Determine the VAT Output or Output Tax.
Persons or firms engaged in processing sardines,
mackerel, and milk, and in manufacturing refined sugar Determine the VAT Input or Input Tax.
and cooking oil, and packed noodle-based instant meals, Output Tax (400,000 x 12%) P
shall be allowed a PRESUMPTIVE INPUT TAX, 48,000.00
equivalent to four percent (4%) of the goods value in
money of their purchases of PRIMARY AGRICULTURAL Input Taxes:
PRODUCTS which are used as inputs to their production.
Fish from fishermen ( 100,000.00 x 0%) P0
What is a transitional input tax? Tin Cans ( 20,000.00 x 12%) P 2,400.00
Tomato paste in cans ( 5,000.00 x 12%)P 600.00
A taxpayer not subject to the value added tax BECOMES Olive oil in plastic bottles ( 2,500,00 x 12%)P 300.00
SUBJECT to the value added tax because: Pepper from farmers ( 1,800.00 x 4%)P 72.00
- the gross sales of the preceding year exceeded P1.5M Paper labels from printers ( 500.00 x 12%)P 60.00
(TRAIN: 3Million) or TOTAL INPUT TAXES P
3,432.00
- the taxpayer being exempt from the VAT system, he was
qualified, and opted to be, registered under the value RULES in VALUE ADDED TAX
added tax system. An Input VAT is usually creditable against an Output VAT
Then, he shall be allowed an input tax on his inventory on if the related goods or service from which it arises are used
the transition date, of goods, materials and supplies in the conduct of business.
equivalent to 2% of the inventory value, OR the value At the end of any taxable period, if the Output VAT
added tax actually paid on it, WHICHEVER IS HIGHER, exceeds the Input VAT, only such excess amount is
excluding goods that are VAT exempt. payable by the taxpayer to the BIR.
-The inventory on the transition date should be reported VAT formula: VAT Output/Output Tax Less : VAT Input
to the Bureau of Internal Revenue. or Input Tax = VAT Payable to the BIR
THE VALUE ADDED TAX IN THE SALES Output Tax (400,000 x 12%) P 48,000.00
INVOICE
Input Taxes:
As a general rule, the VALUE-ADDED TAX should be
shown as a separate item in the sales invoice. If the invoice Fish from fishermen ( 100,000.00 x 0%)
shows only a total, the value added tax component on the P0
total shown in the invoice is determined by multiplying Tin Cans ( 20,000.00 x 12%) P 2,400.00
the total by the fraction of 12/112. Tomato paste in cans ( 5,000.00 x 12%) P 600.00
Olive oil in plastic bottles ( 2,500,00 x 12%) P 300.00
Example: If the total invoice is amounting to P 120K , vat Pepper from farmers ( 1,800.00 x 4%) P
included. 72.00
Paper labels from printers( 500.00 x 12%) P 60.00
TOTAL INPUT TAXES P 3,432.00
VAT PAYABLE P 44,568.00
If the Input VAT, inclusive of input tax carried over from
the previous quarter(s) exceeds the Output VAT, the
excess Input VAT shall be carried over to the succeeding
quarter or quarters.
Note: The excess input VAT can be claimed as a VAT
credit in the succeeding quarters.
Any Input VAT attributable to the zero-rated sales by a
VAT-registered person may, at his option and WITHIN
TWO (2) YEARS, after the close of the taxable quarter
when the sales were made, be refunded or applied for a
tax credit certificate which may be used in the payment of
internal revenue taxes, EXCEPT transitional input tax, to
the extent that such input tax has not been applied against
output tax.
Under RR No. 5-2000 July 29, 2011, it says that:
“ALL TAX CREDIT CERTIFICATES (TCC’S) ISSUED BY
THE BIR SHALL NOT BE ALLOWED TO BE
TRANSFERRED OR ASSIGNED TO ANY PERSON.”
1. EXECUTIVE ORDER NO. 68: “MONETIZATION
PROGRAM OF OUTSTANDING VALUE-ADDED
TAX (VAT) TAX CREDIT CERTIFICATES (TCCs)
In order to give qualified VAT-registered taxpayers the
cash equivalent of their outstanding TCCs.
For revalidated and unexpired TCCs issued in the years
2002 and 2003, THE MONETIZATION WILL BE FROM
JULY 17, 2012 TO SEPTEMBER 1, 2012.
For revalidated and unexpired TCCs issued in the years
2004 to April 11, 2012, THE MONETIZATION WILL BE
FROM JULY 17, 2012 TO OCTOBER 17, 2012.
Cancellation of registration as a VAT taxpayer
The registration of any person as a value added taxpayer
may be cancelled if:
• He makes a written application and can demonstrate
to the Commissioner’s satisfaction that his gross sales
for the following 12 months will not exceed 1,919,500.
TRAIN:
• He has ceased to carry on his trade or business and
does not expect to recommence any trade or business
within the next 12 months.
• WITHIN TWO (2) YEARS FROM THE DATE OF
CANCELLATION, apply for issuance of a tax credit
certificate for any UNUSED INPUT TAX which may
be used in payment of his other internal revenue
taxes.
• BIR will grant a refund or issue tax credit certificate
within 120 days from submission of complete
documents in support of the application.
MONTHLY DECLARATION AND QUARTERLY
RETURN
• Within the twenty five (25) days after the end of the
quarter, there shall be a Quarterly VAT return.
Payment of VAT shall be on a monthly basis. Filing
and payment shall be made to an authorized agent
bank, Revenue Collection Officer or duly authorized
city or municipal Treasurer in the Philippines located
within the Revenue District where the taxpayer is
registered.
WITHHOLDING OF VALUE-ADDED TAX
• The Government , or any of its political subdivisions,
instrumentalities or agencies, including GOCC’s,
shall, before making payment on account of its
purchase of goods from sellers who are subject to the
value-added tax, deduct and withhold a final value-
added tax at the rate of 5% of the gross payment, to be
remitted within ten (10) days following the end of the
month the withholding was made. But for lease or use
of properties or property rights to non-resident
owners shall be subject to 12% withholding tax a the
time of payment.
The Commissioner of Internal Revenue has the power to
suspend the business operations of taxpayer in the
following cases:
1. Failure to issue receipts or invoices;
2. Failure to file VAT return
3. Understatement of taxable receipts or sales by 30%
or more of his correct taxable sale or receipts for the
taxable quarter.
Revenue Regulation No. 7-2010
IMPLEMENTING THE TAX PRIVILEGES PROVISIONS
OF RA 9994, OTHERWISE KNOWN AS THE
“EXPANDED SENIOR CITIZENS ACT OF 2010”, and
PRESCRIBING THE GUIDELINES FOR THE
AVAILMENT THEREOF [Check lattan)
DIAZ v. Secretary of Finance
TOLL FEES ARE SUBJECT TO VALUE-ADDED TAX B. Tax on Domestic Carriers

The Court held that the law imposes VAT on all kind of
services rendered in the Philippines for a fee. When a
tollway operator takes a toll fee from a motorist, the fee
is in effect for the latter’s use of the tollway facilities over
which the operator enjoys private propriety rights that
its contract and the law recognize.
There are common carrier’s that can be subjected to
Percentage Tax known as “common carriers tax. and there
are also common carriers that can be subjected to Value
Added Tax.
COMMON CARRIER BY LAND

Tollway operators also come under specific class 1. Transporting goods or cargoes 12% VAT
described in Sec. 108 of the NIRC of 1997 as “all other 2. Transporting passengers 3% Common Carriers
franchise grantees” that are subject to VAT. Tax(CCT)
PERCENTAGE TAX 3. Cars for rent or hire driven by the lessee 3% CCT
Under Sections 116 to 127 of the NIRC 4. Carriers Transportation Contractors, including persons
The percentage taxes are: who transport passengers for hire 3% CCT

a. 3% percentage tax on persons exempt from the value 5. Other domestic carriers by land for transport of
added tax because their gross annual sales do not passengers, except owners of animal-drawn two wheeled
exceed 1.5M TRAIN 3Million, and who are not vehicles 3% CCT
required to pay a percentage tax under any of (b) to 6. Keepers of garages 3% CCT
(l) , below;
b. Tax on domestic carriers; The percentage tax/common carriers tax of 3% is based
c. Tax on international carriers; on quarterly gross receipts
d. Franchise tax;
e. Overseas Communications tax; -How does one determine the actual gross receipts of a
f. Tax on banks and non-bank financial intermediaries jeepney or taxi on which to apply the 3% percentage tax?
performing quasi-banking functions; The law provides statutory minimum quarterly gross
g. Tax on other non-bank financial intermediaries; receipts:
h. Tax on life insurance companies; Quarterly Monthly
i. Tax on agents of foreign insurance companies; Jeepney for hire:
j. Amusement Tax; Manila and other cities P 2,400 P 800
k. Tax on winnings; Provincial P 1,200 P 400
l. Tax on stock transactions. Public Utility Bus:
Not exceeding 30 passengers P 3,600 P 1,200
TAX BASE OF PERCENTAGE TAXES Exceeding 30 but not 50 pax P 6,000 P 2,000
-Percentage taxes are based on gross receipts. Exceeding 50 passengers P 7,200 P 2,400
Taxis:
-Payable by the sellers of the services, except the overseas Manila and other cities P 3,600 P 1,200
communications tax, which is payable by the user of the Provincial P 2,400 P 800
facilities of the seller. Car for hire:
With chauffeur P 3,000 P 1,000
Gross Receipts are cash actually or constructively Without chauffeur P 1,800 P 600
received. Receivables are not yet taxable although an
income is already earned thereon.
COMMON CARRIER BY AIR or SEA
-There are no deductions from gross receipts, except Sales
Returns and Allowances and Sales Discounts, to arrive at -From one point in the Philippines to another point in the
the taxable gross receipts. Philippines
Transporting goods or cargoes 12% VAT
A. 3% percentage tax based on gross quarterly sales on Transporting passengers 12% VAT
persons exempt from the value added tax because their -From one point in the Philippines to a point outside the
gross annual sales do not exceed P1,919,500.00 TRAIN: Philippines
3Million Transporting goods or cargoes 0% Value Added Tax
Take Note of the BUSINESSES THAT ARE EXEMPTED Transporting passengers 0% Value Added Tax
FROM VAT OR PERCENTAGE TAXES (regardless of
annual gross sales or receipts), as provided for by C. INTERNATIONAL CARRIERS
Section 109.
International air carriers and international shipping
carriers doing business in the Philippines shall pay a tax
equivalent to 3% of their quarterly gross receipts from
shipping outgoing from the Philippines.
D. FRANCHISE TAX
Franchise is a law. It authorizes a certain person, natural
or juridical persons, to operate a public utility. Certain
franchise grantees are subject to percentage tax and also
known as franchise tax .
However, there are also other franchise grantees that
shall be subject to the value added tax.
However, those whose gross receipts did not
exceed P10,000,000.00 may opt to be registered under
the value added tax system. But once the option is
exercised, (as a VAT registered) the option is
IRREVOCABLE.
TAX RATES:
1. On interest, commissions and discounts from lending
activities as well as income from financial leasing on
the basis of the remaining maturities of instruments
from which such receipts were derived:
Maturity period is five years or less 5%

Maturity period is more than five years 1%

FRANCHISE TAX IS: 2.On dividends and equity shares in net income
subsidiaries -0%
On Gross Receipts covered by the law granting the
franchise; 3. On royalties, rentals of property, real or personal, profits
from exchange and all other items treated as gross
1. for radio and/or television broadcasting companies income under the income tax law and on net trading
whose annual gross receipts of the preceding year did gains on foreign currency, debt instruments, derivatives
not exceed P10,000,000.00 3% and other similar financial instruments -7%
2. on gas and water utilities 2% G. Tax ON OTHER NON-BANK FINANCIAL
INTERMEDIARIES

E. OVERSEAS COMMUNICATIONS TAX
AMOUNTS RECEIVED FOR OVERSEAS DISPATCH
MESSAGE OR CONVERSATION ORIGINATING FROM
THE PHILIPPINES (outgoing message) SHALL BE
SUBJECTED TO A PERCENTAGE TAX KNOWN AS THE
OVERSEAS COMMUNICATIONS TAX.
Tax Base – on the amount paid by the user to the
provider of the communication facility.
Tax Rate- 10% of the amount paid.
But, the overseas communications tax shall not apply to :
1. Government
TAX BASE: Gross receipts from sources WITHIN the
Philippines.
TAX RATES:
1. On interest, commissions and discounts from lending
activities as well as income from financial leasing on
the basis of the remaining maturities of instruments
from which such receipts were derived:
Maturity period is five years or less 5%
Maturity period is more than five years 1%
2. On interest, commissions, discounts and all other items
treated as gross income under the income tax law. 5%

2. Diplomatic Services H. Tax ON INSURANCE COMPANIES.

3. International Organization Insurance companies may be divided into two classes:

4. News services A. Non-life insurance companies; and

B. Life insurance companies.
F. Tax ON BANKS AND NON-BANK FINANCIAL
INTERMEDIARIES PERFORMING QUASI-
BANKING FUNCTIONS. Note: NON-LIFE INSURANCE COMPANIES ARE
SUBJECT TO THE VALUE ADDED TAX.
TAX BASE: Gross receipts from sources WITHIN the
Philippines. LIFE INSURANCE COMPANIES ARE SUBJECT TO A
PERCENTAGE TAX, called PREMIUM TAX.
Note: On radio and/ or television broadcasting company
whose annual gross receipts of the preceding year Tax Base: Total life insurance premiums collected
exceeded P 10,000,000 shall be subject to the value added (gross receipts), whether in money, notes, credits, or any
tax. substitute for money;

Tax Rate: Five percent (5%)

Exemptions:
1.Premiums refunded within 6 months after payment on
account of rejection of risk or returned for other reasons
to a person insured;
2.Reinsurance premiums paid by a company that has
already paid a tax;
3.Premiums collected or received by any branch of a
domestic corporation, firm or association doing business
in the Philippines on account of any life insurance of an
insured who is a non-resident, if any tax on such
premiums is imposed by the foreign country where the
branch is established;
4.Reinsurance premiums, if the insured of personal
insurance resides outside the Philippines, if any tax on
such premium is imposed by the foreign country where
the original has been issued or perfected.
5.Portion of the premiums collected or received by
insurance companies on variable contracts in excess of
the amount necessary to insure the lives of variable
contract owners.
I. Tax ON AGENTS OF FOREIGN INSURANCE
COMPANIES.
Every fire, marine or miscellaneous insurance agent
authorized under the Insurance Code to procure
insurance as he may have previously been authorized to
transact on risks located in the Philippines, for those
companies not authorize to transact business in the
Philippines, SHALL PAY A TAX EQUAL TO TWICE THE
TAX IMPOSED ON LIFE INSURANCE COMPANIES-
hence, ten percent (10%).
BUT, An owner of property can obtain directly for himself
policies in foreign companies but he must report to the
Insurance Commissioner and to the Commissioner of
Internal Revenue such case, and pay a tax of five percent
(5%) on premiums paid.
J. AMUSEMENT TAX
Amusement Tax on admissions to theaters,
cinematographs, concert halls, circuses and other places
of amusement is a local tax.
The Tax Base of amusement tax is the GROSS RECEIPTS
of the proprietor, lessee or operator of the amusement
place. It includes income from television, radio and
motion picture rights, if any.
Amusement Place- NOT ALL ARE SUBJECT TO THE
AMUSEMENT TAXES.
Amusement Activities- NOT ALL ARE SUBJECT TO
AMUSEMENT TAXES.
Amusement Places subject to percentage tax called
amusement tax:
Place for boxing exhibition 10%
Place for professional basketball 15%
Cockpits, cabarets, night or day clubs 18%
Jai-alai and race tracks 30%
Exemption: Boxing exhibitions where World or Oriental
Championships in any division is at stake shall be exempt
from amusement tax, IF ONE OF THE CONTENDERS is
a citizen of the Philippines and said exhibitions are
promoted by citizens of the Philippines or a by a
corporation or association at least sixty percent (60%) of
the capital of which is owned by such citizens.
K. TAX ON WINNINGS.
The tax is on winnings of:
1. person who wins in horse races and jai-alai. Tax must
be based on his WINNINGS. 10%
But if winnings is from double, forecast, quinella and
trifecta bets 4%
2. Owner of winning race horses, based on the prize. 10%
Note: The tax shall be withheld from the winnings or
prize by the operator, manager, or person in charge of the
horse races or jai alai.
L. TAX ON STOCK TRANSACTIONS
On sale, barter, exchange or other disposition of shares
listed and traded thru a local stock exchange,
other than by a dealer in securities:
½ of 1 percent TRAIN .06% based on the gross selling
price or gross value in money of the shares sold.
On sale, barter, exchange or other disposition of shares
thru initial public offering of shares of stock in a closely
held corporation, in accordance with the proportion of the
shares sold, bartered, exchanged, or otherwise disposed
of to the total outstanding shares of stock after listing
in the local stock exchange, as follows:
Up to 25% 4%
Over 25%, but not over 33 and 1/3% 2%
Over 33-1/3% 1%
RETURN AND PAYMENT OF PERCENTAGE TAXES
The taxpayer may file a separate return for each branch or
place of business, or a consolidated return for all.
As a general rule:
Every person liable to pay a percentage tax shall file a
quarterly return of the amount of his gross receipts and pay
the tax thereon, within twenty five (25) days after the end of
each taxable month.
Exceptions: When the BIR Commissioner may, by rules and
regulations, prescribe the time for filing the returns.
 EXCISE TAX (ET) But, if the alcohol products is produced from sap of nipa,
coconut, cassava, camote, buri palm or from juice or
-A national internal revenue tax to which only: syrup of sugar cane, the excise tax would be as follows:
• Manufacturers; or Excise Tax
• Importers *Small-scale production
(not more than 100 liters/day) P 4 per proof liter
may be subjected to excise tax. *Commercial production
(more than 100 liters/day) P 8 per proof
2 KINDS OF EXCISE TAXES liter
1. Specific Tax- an excise tax imposed and based
on weight or volume or capacity or any other Alcohol Products - Wine
physical unit of measurement. Wines - alcoholic beverages produced by fermentation
2. Ad Valorem Tax-excise tax imposed and based without distillation from juice of any kind of fruit.
on selling price or other specified value of the
article. Retail Price /Liter Tax per Liter
(exclusive of VAT & Excise Tax)
Purposes of ET: Sparkling wine/Champagne, regardless of proof
• To curtail consumption of certain commodities liter:
which are considered harmful to the individual P500 and less =P 100
as well as the community as a whole; More than P500 =P 300
• To protect domestic industries from competition
caused by similar imported products; Wine containing 14% alcohol or less = P12
• To distribute the tax burden in proportion to
benefit derived from a particular government Wine containing more than 14% alcohol but
service; notmore than 25% alcohol by volume =P 24
• To raise revenue.
Fortified wines produced by mixture of distilled
Articles subject to ET spirits with water and other substance such as
1. Alcohol products flavoring extracts and coloring materials in such
2. Tobacco portion that the resultant mixture contains more
3. Petroleum than 25% of alcohol by volume
4. Mineral =same as in distilled spirits
5. Automobiles
6. Non-essential goods Alcohol Products – Fermented Liquors
Fermented liquors
I. ALCOHOL alcoholic beverages produced by fermentation without
distillation of grains or malt, which include beer, lager,
Alcohol Products-Distilled Spirits ale porter and other similar products but excluding
tuba, basi, tapoy and other similar domestic
 Distilled Spirits fermented liquor.
-substance known as ethyl alcohol and ethanol including Retail Price /Liter Tax per
all dilutions, purification and mixtures thereof, from Liter
whatever source, by whatever process produced, and (exclusive of VAT & Excise Tax)
shall include whisky, brandy, rum, gin and Less than P 14.50 - P 6.15
vodka and other similar products or mixtures. P 14.50 up to P 22.00 - P 9.15
Retail Price – it is the amount of money or prices which More than P 22.00 - P 12.15
an ultimate consumer or end user pays for the
product. II. TOBACCO PRODUCTS

1. P 0.75/KILO of the following tobacco products:

If the Retail Price: Excise Tax would be: Less
than P250 per 750 ml. =P 75 per proof liter • Tobacco twisted by hand or reduced into a
P250 to P675 per 750 ml. = P 150 per proof liter condition to be consumed in any manner other
More than P675 per 750 ml.= P 300 per proof liter than the ordinary mode of drying and curing;
• Tobacco prepared or partially prepared with or
How to determine Proof Liter: without the use of any machine or instrument or
1 liter = 1,000 ml without being pressed or sweetened;
Percent of proof = degree of proof per 100% • Fine-cut shorts and refuse, scraps, clippings,
Proof liter = percent of proof liter x volume in liter cuttings, stems and sweepings of tobacco.

2. P 0.60/KILO of tobacco specially prepared for

chewing and not suitable for use in any other manner;
3. P 1.00 per piece on cigar (cigar means all rolls of Over/Up to Excise Tax Rate
tobacco or any substitute thereof, wrapped in leaf
tobacco) Up to 600,000 4%
4. P0.40 per pack on cigarettes packed by hand
(cigarette means all rolls of finely cut leaf tobacco or any Over 600,000 10%
substitute thereof, wrapped in paper or in any other Up to 1,000,000
similar materials).
Over 1,000,000 20%
5. Cigarette packed by machine: Up to 4,000,000
Retail price/pack Excise Tax per pack
(excluding VAT & Excise Tax) Over 4,000,000 50%
Below P 5.00 P 1.00
P5.00 to P6.50 P 5.00
(TRAIN PROVISIONS)
Over P6.50 but not over P10 P 8.00 .
over 10 P12.00  Purely electric vehicles and pickups shall be exempt
from excise tax on automobiles.
NIRC vs TRAIN (on tobacco)
NIRC provision: Section 145 (B) and (C) Excise tax on  Hybrid electric vehicle — a motor vehicle powered
cigarettes packed by hand and by machine by electric energy, with or without provision for off-
vehicle charging, in combination with gasoline,
TRAIN: diesel, or any other motive power, and one that must
Effective Tax be able to propel itself from a stationary condition
Jan 1, 2018 – Jun 30, 2018 ₱32.50 per pack using solely electric motor.
Jul 1, 2018 – Dec 31, 2019 ₱35.00 per pack
Jan 1, 2020 – Dec 31, 2021 ₱37.50 per pack  Hybrid vehicles shall be subject to 50% of the
Jan 1, 2022 – Dec 31, 2023 ₱40.00 per applicable taxes.
pack
III. PETROLEUM PRODUCTS  Provided, that in the case of imported automobiles
(SEE TABLES) not for sale, the tax imposed herein shall be based on
the total landed value, including transaction value,
IV. MINERAL PRODUCTS customs duty and all other charges.
(SEE TABLES)
VI. NON-ESSENTIAL GOODS
V. AUTOMOBILES
Non-essential goods include the following:
Tax Base
1. If locally manufactured or of imported for re-sale -All goods commonly or commercially known as Jewelry,
domestically, the tax base shall be the whether real or imitation, pearls, precious and semi-
manufacturer or importer’s selling price net of precious stoned and imitations thereof;
excise and VAT.
-Perfumes and toilet waters;
2. If the importation is not intended for re-sale
domestically, the tax base shall be the total value -Yachts and other vessels intended for pleasure or
used by the Bureau of Customs in determining sports.
tariff and custom duties, including custom duty
and all other charges plus 10% of the total thereof. EXCISE TAX BASE and RATE

NIRC v TRAIN -20% of the wholesale price or the value of importation

used by the Bureau of Customs in determining the tariff
NIRC and custom duties, net of excise tax and value added tax.
Up to 600,000 =2%
Over 600,000 =12,000 + 20% of value in PLACE and TIME FOR FILING OF RETURN and
Up to 1,100,000 excess of 600,000 PAYMENT OF TAX
-Return shall be filed and Excise tax shall be paid:
Over 1,100,000 =112,000 + 40% of value in
• By the manufacturer or producer before
Up to 2,100,000 excess of 1,100,000
removal of the products from the place of
Over 2,100,000 =512,000 + 60% of value in
production. A separate return for each place of
excess of 2,100,000
production shall be filed by every liable person.

• By the importer before removal of the

TRAIN importation from the custom warehouse to be
 paid to the Custom Officers under the regulation
of the Department of Finance.
 With respect to the excise tax on locally produced
or extracted metallic mineral or mineral
products, the person liable shall file a return and
pay the tax within 15 days after the end of the
calendar quarter when such products were
removed subject to such conditions as may be
prescribed by rules and regulations to be
promulgated by the Secretary of Finance upon
recommendation of the BIR.
 The return shall be filed with and the tax paid to
any authorized agent bank or Revenue Collection
Officer, or duly authorized City or Municipal
Treasurer in the Philippines.
INVASIVE COSMETIC PROCEDURE(SEC. 150A)
1. Plastic Surgery – refers to a surgical specialty
dedicated to reconstruction of facial and body
defects due to birth disorders, trauma, burns, and
disease. It intends to correct dysfunctional areas
of the body and is reconstructive in nature.
2. Cosmetic Surgery – refers to a type of plastic
surgery that aims to improve a person’s
appearance, through invasive cosmetic
procedures, surgeries, and body enhancements
directed solely on improving, altering and
enhancing the person’s appearance and do not
necessarily promote the proper functions of the
body or prevent or treat illness or disease.
3. Reconstructive Surgery – aims to improve
function and give a normal appearance to a part
of a persons body that has been damaged,
ameliorate a deformity arising from, or directly
related to, a congenital or developmental defect
or abnormality, a personal injury resulting from
accident or trauma, or disfiguring disease, tumor,
virus or infection.
4. Invasive Cosmetic Procedure – refers to a
surgery that is carried out by entering the body
through the skin or through body cavity or
anatomical opening, but with the smallest
damage possible to these structures. It includes:
a. Liposuction
b. Mammoplasty
c. Breastlift
d. Buccal Fat Reduction
e. Buttocks Augmentation
f. Chin Augmentation
g. Facelift/Necklift
h. Thread Lift
i. Hair restoration/transplantation
j. Eyelid surgery
k. Vaginal plastic surgery
l. Abdominoplasty or tummy tuck
m. Auto grafting
n. Rhinoplasty/alar trimming
o. Otoplasty
5. Non-invasive Cosmetic Procedure – refers
to a conservative treatment that does not require
incision into the body or the removal of tissue,
or when no break in the skin is created and there
is no contract with mucosa, or skin break, or
internal body cavity beyond a natural or artificial
body orifice. Non-invasive cosmetic procedures
shall include, but not limited to the following:
a. Acupuncture rejuvenation therapy
b. Air dissector
c. Botulinum toxin injection/ treatment
d. Collagen induction therapy
e. Dermal fillers(crosslinked and non-
crosslinked)
f. Embedded protein threads
g. Non-surgical facelifting and skin tightening
using radio frequence, ultrasound, infrared
h. Fractional CO2
i. Lasers and light treatments
j. Body treatments and contouring procedures
k. Cleanings and facials
l. Peelings(face and body)
m. Injectibles and weight management
treatment
Rate and Base of Excise Tax
Rate – 5%
Base – Gross Receipts, net of excise tax and VAT
Coverage – invasive cosmetic procedures, surgeries and
body enhancements directed solely towards improving,
altering, or enhancing the patient;s appearance and do
not meaningfully promote the proper function of the body
or prevent or treat illness or disease.
EXCLUSIONS:
1. Non-invasive – arising from:
a. Congenital or developmental defect or
abnormality
b. Personal injury resulting from an
accident/trauma
c. Disfiguring disease, tumor, virus, or infection
2. Cases or treatments covered by the National
Health Insurance Program
Persons liable to file a return
Any person, whether individual or juridical entity,
performing invasive medical/cosmetic procedures,
surgeries, body enhancements directed solely on
improving, altering, or enhancing the patient’s
appearance and do not meaningfully promote the proper
functions of the body or prevent or treat illness.
 The service provider is authorized to act as
withholding agent for the 5% ET billed and is
ultimately liable to remit the ET. The 5% to be
withheld and remitted is based on gross receipts
net of VAT and is considered final and no
adjustment shall be allowed to be made by the
statutory bearer of the ET.
Manner of Remittance of ET
-the ETR is required to be filed and the ET paid by the 1. Request Letter
manufacturer or producer of the goods before removal 2. Certificate of SEC together with AOI and By-laws
from the place of production. for Corporation and Partnership ; and Certificate
of Registration with the Office of the DTI for
Invoicing Reqts(Admin. Requirements) individual
3. Mayor’s Permit
Every person subject to excise tax shall issue: 4. BIR Certificate of Registration (with latest
1. Official receipt for services performed whether registration fee BIR Form 0605)
invasive or not. 5. Latest copy of ITR
2. The following information shall be indicated in 6. Location Map of clinics or hospitals where the
the official receipt: medical professionals perform their services
-the amount which the patient pays or is obligated to pay 7. Price list of invasive/ non-invasive medical
including the ET and VAT: Provided, that: procedures
- - the amount of ET shall be shown as a separate
item in the OR;
- - discounts given shall be indicated in the OR,
otherwise the same shall not be allowed as deduction from
gross receipts;
- - if the procedure performed is non-invasive and
considered exempt from excise tax, the term Exempt from
Excise Tax shall be shown in the OR;

-If the services performed involved both

invasive(excisable) and non-invasive(exempt)
procedures, the receipt shall clearly indicate the
breakdown of the amount received between its taxable
and exempt components and the calculation of excise tax
on each portion of the procedure performed shall be
shown on the receipt:
- - provided, that the service provider may issue
separate ORs for the excisable and exempt components of
the services rendered.

Accounting Requirements
1. Name of Patient
2. TIN
3. Invasive cosmetic procedures performed
4. Non-invasive cosm. Proc. Performed
5. Official receipts number
6. Gross receipts number (net of VAT and 5% ET)
7. 5% ET to be withheld and remitted
8. 12% VAT due
9. Total amount to be collected from customer(sum
of 6,7,8)
10. Remarks

 Any violation of the provision of this regulation

shall, in addition to other penalties provided by
law, upon conviction thereof, be punished with a
fine of not less than P500K – 10M, and
imprisonment of 6yrs – 10 yrs.
 The conviction or acquittal obtained under this
section shall be a bar to the filing of a civil suit for
the collection of taxes.

APPLICATION FOR PERMIT TO OPERATE

Any person subject to ET under Section 150-A shall file an

application for a Permit to Operate with the Excise LT
Regulatory Division BIR National OFFICE.

The application shall be accompanied by the ff: