You are on page 1of 67

VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTY

A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of gross receipts excluding the value-added tax, derived from the sale or exchange of services, including the use or lease of properties.

SALE OR EXCHANGE OF SERVICES


The phrase 'sale or exchange of services' means the performance of all kinds or services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by:

Construction and service contractors; Stock, real estate, commercial, customs and immigration brokers; Lessors of property, whether personal or real;
Real estate lessor includes any person engaged in business of leasing or subleasing real property Non-residential lessor refers to person , natural and juridical an alien or a citizen who establishes to the satisfaction of the Commissioner of Internal Revenue the facts of his physical presence abroad with a definite intention to reside there in

Persons engaged in warehousing services;


Engage in business of receiving and storing goods of others for compensation or profit Receiving goods and merchandise to be stroed in his warehouse for hire; Keeping and storing goods for others, as a business and for use

Proprietors, operators or keepers of hotels, motels, rest houses pension houses, inns, resorts, theatres, and movie houses;
Under Revenue Memorandum Order 16-10, Issued Feb. 5,2010, determines that hotels,resort and other establishment that do not allow short time (less than 24) stay in shall not be covered by this RMO.

Persons engaged in milling, processing, manufacturing or repacking goods for others;


miler is a person who is engaged in milling for others (except rice, corn into corn grits and sugarcane into raw sugar) must be subject to 12% VAT on sale of service

Proprietors or operators of restaurants, refreshment parlors, cafes, and other eating places, including clubs and caterers;

Dealers in securities;
Dealer in securities refers to a merchant of stock or securities, whether individual, partnership or corporation, one who as a merchant buys securities and sell them to customer Dealers in securities and lending invesotrs shall be subject to VAT on the basis of gross receipts

Lending investors;
Lending investors includes all person other than banks, nonbank financial intermediaries, financial companies and other financial intermediaries not performing quasi-function.

Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes;
Common carrier refers to persons, corporation, firms or associate engaged in the business of carrying or transporting passengers or goods or both in land or water or air for a compensation.

Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines;

Sales of electricity by generation, transmission, and/or distribution companies; shall be subject to 12% VAT;
Generation companies refers to person or entities authorized by the Energy Regulatory Commission to operate facilities used in the generation of the electricity. Transmission companies refers to any person or entity that owns and conveys electricity through a high voltage backbone system and sub-transmission asset. Distribution companies refers to a person or entity which operate distribution system in accordance with the provision of the EIRPA, it could be s government-owned utility or existing government unit

Franchise grantees of electric utilities, telephone and telegraph, radio and/or television broadcasting and all other franchise grantees, except franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities;

Non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and Similar services regardless of whether or not the performance thereof calls for the exercise of use of the physical or mental faculties.

Health maintenance organization;


Health maintenance organization (HMO) are entities, organized in accordance with the provision of Corporation Code of the Philippines and licensed by the appropriate government agency.

Pre-need companies;
Pre-need companies refers to corporation registered with the Securities and Exchange Commission and authorized to sell or offer for sale pre-need plans, whether a single plans or multiplan.

The phrase 'sale or exchange of services' shall likewise include:

(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan secret formula or process, goodwill, trademark, trade brand or other like property or right; (2) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment; (3) The supply of scientific, technical, industrial or commercial knowledge or information;

(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3);

(5) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person. (6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;

(7) The lease of motion picture films, films, tapes and discs; and (8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.

GROSS RECEIPTS
The term 'gross receipts' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax.

Transactions Subject to Zero Percent (0%) Rate The following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.

Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;

Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006;

Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of total annual production; Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of total annual production;

Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country. Gross receipts of international air carriers doing business in the Philippines and international sea carriers doing business in the Philippines are still liable to a percentage tax of three percent (3%) based on their gross receipts as provided for in Sec. 118 of the Tax Code but shall not be liable to VAT; and

Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other shipping sources using technologies such as fuel cells and hydrogen fuels; Provided, however that zero-rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy, and shall not extend to the sale of services related to the maintenance or operation of plants generating said power .

Effectively Zero-Rated Sale of Services Shall refer to the local services by a VAT registered person to a person or entity who was granted indirect tax exemption under the special laws or international agreement

Vat on Importation of Goods

Subject to 12% VAT based on the total value used by the Bureau of Custom in determining tariff and customs duties, plus custom duties, excise taxes if any, and other changes. Subject to VAT, whether for use in business or not Same rule applies to technical importation of goods sold by a person located in ecozone to a customer located in a customs territory.

VAT on imported goods by VAT exempt persons which are subsequently sold to nonexempt persons shall be paid by the nonexempt buyer who is considered as the importer thereof.

OUTPUT and INPUT TAXES

Output tax means the value-added due on


the sale or lease of taxable goods or property or services by a VAT-registered person.

Input tax

means the value-added tax due from

or paid by a Vat registered person in the course of his trade or business on importation of goods or service, including lease or use of the property from a VAT-registered person.

(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods: (i) For sale; or (ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or (iii) For use as supplies in the course of business;

(iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code, except automobiles, aircraft and yachts.

(b) Purchase of services on which a valueadded tax has been actually paid.

(iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code, except automobiles, aircraft and yachts.

(b) Purchase of services on which a valueadded tax has been actually paid.

(2) Purchase of real properties for which a value added tax has actually been paid. (3)Transaction deemed sale

(4) Transaction input tax allowed


(5) Presumptive tax allowed

(6) Transitional input tax credit allowed under the transitory and other position

(2)

The input tax on domestic purchase of goods or properties shall be creditable:


(a) To the purchaser upon consummation of sale and on importation of goods or properties; and (b) To the importer upon payment of the valueadded tax prior to the release of the goods from the custody of the Bureau of Customs. However, in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.

Transitional/ Presumptive Input Tax Credits.

Transitional Input TAX

SEC. 111. Transitional/Presumptive Input Tax Credits. A person who becomes liable to value-added tax when the minimum turnover of P1,919,500(effective Jan 1,2012) in any 12 month period has been exceeded or any person who elects to be a Vat-registered person shall be subject to filling of inventory according to the rules and regulation prescribed by the Secretary of Finance Input tax on his beginning inventory of goods, materials and supplies equivalent to two percent (2%) of value of such inventory Amount allowable shall be creditable to Output tax In real estate developers subject to VAT for the first time are entitled to transitional input tax credit on the value of their beginning inventory of real properties

Presumptive Input TAX

SEC. 111. Transitional/Presumptive Input Tax Credits. Persons or firms engaged in the processing of sardines,

mackerel and milk, and in manufacturing refined sugar and cooking oil, shall be allowed a presumptive input tax, creditable against the output tax.
the term 'processing' shall mean pasteurization, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition. equivalent to four percent (4%) of the gross value in

money of their purchases of primary agricultural products which are used as inputs to their production.

Input Tax on Depreciable Goods


Capital Goods or properties refers to goods or properties with estimated useful life greater than one (1) year and which is treated assets under the tax code used directly or indirectly in the production or sale of taxable goods and services

If the aggregate acquisition cost of capital goods and properties exceeds one million pesos (1,000,000) shall be claimed as credit against output tax in the following manner:
If the estimated life of the capital goods is five or more- the input tax shall be spread evenly over the period of sixty(60) months and claim for the input tax credit will commence in the calendar month when the capital good is acquired. If the estimated life of the capital good is less than five(5) years- the input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of the capital good

If the aggregate acquisition cost of any capital goods during

any calendar month does not exceed one million pesos (1,000,000), the total input taxes will be allowable as credit against output tax in the month of acquisition.

If the aggregate acquisition cost of depreciable goods refers to the total price agreed upon for one ore more asset acquired and not on the payments actually made during calendar month , the asset acquired through instalment will be subject to amortization of input tax despite the fact that the monthly payments/ instalments may not exceed P1,000,000. If the goods are sold within the period of five (5) years, the entire unamortized input tax on the capital goods can be claimed as input tax credit during the month/ quarter of sale.

Apportionment of Input Tax on Mixed Transaction


A VAT registered person who is also engaged in transaction not subject to the value-added tax shall be allowed to recognize input tax credit on transaction subject to the VAT as follows:
1. All the input tax which can be directly attributed to transaction subject to VAT (except sale of goods and services to government or government-owned or controlled corporation) 2. A rateable portion of any input tax which cannot be directly attributed to either VAT taxable or VAT exempt acivity. The input tax shall be prorated on the basis of sales

Creditable Input Tax


Input Tax, current period Add: Excess Input Tax, previous period Less: Claim for refund/ Tax Credit Certificate Purchase Return and Allowances Input Tax-Exempt Sales Input Tax-Sale Government* Creditable Input Tax
*Subject to final VAT with holding of 5%

xxx xxx xxx xxx xxx xxx

xxx xxx

Value-Added Tax Payable


If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the Vat-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes. Output Taxes less: Input Taxes VAT Payable xx xx xx

EXEMPT TRANSACTION

What is VAT-exempt sale?


Chap 21
It is a sale of goods, properties or service and the

use or lease of properties which is not subject to output tax and whereby the buyer is not allowed any tax credit or input tax related to such exempt sale.

What are the VAT-exempt transactions?

Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefore;

Chap 21

Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals considered as pets);
Importation of personal and household effects belonging to residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines; Provided, that such goods are exempt from custom duties under the Tariff and Customs Code of the Philippines;

Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery and 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 orChap 21 exchange, accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue, that such persons are actually coming to settle in the Philippines and that the change of residence is bonafide; Services subject to percentage tax under Title V of the Code, as amended;

Services by agricultural contract growers and milling for others of palay into rice, corn into grits, and sugar cane into raw sugar;

Medical, dental, hospital and veterinary services except those rendered by professionals; Educational services rendered by private educational institutions duly by the Department of Education (DepED), the Commission on accredited Chap 21 Higher Education (CHED) and the Technical Education and Skills Development Authority (TESDA) and those rendered by the government educational institutions; Services rendered by individuals pursuant to an employer-employee relationship; Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines;

Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws except those granted under P.D. No. 529 - Petroleum Exploration Concessionaires under the Petroleum Act of 1949;

Chap 21 Sales by agricultural cooperatives duly registered and in good


standing with the Cooperative Development Authority (CDA) to their members, as well as of their produce, whether in its original state or processed form, to non-members, their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce;
Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the Cooperative Development Authority;

Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the Cooperative Chap 21 Development Authority;

Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good standing with CDA; Provided, that the share capital contribution of each member does not exceed Fifteen Thousand Pesos (P15,000.00) and regardless of the aggregate capital and net surplus rateably distributed among the members; Export sales by persons who are not VAT-registered;

The following sales of real properties are exempt from VAT, namely: Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business; 2. Sale of real properties utilized for low-cost housing as defined by Chap 21 RA No. 7279, otherwise known as the "Urban Development and Housing Act of 1992" and other related laws, such as RA No. 7835 and RA No. 8763; 3. Sale of real properties utilized for specialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws; 1.

Chap 21

4. Sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) and below, or house and lot and other residential dwellings valued at Three Million One Hundred Ninety-nine Thousand Two hundred Pesos (3,199,200)and below where the instrument of sale/ transfer/ disposition was executed on or after July 1, 2005

Lease of residential units with a monthly rental per unit not exceeding Twelve Thousand Eight Hundred (12,800), regardless of the amount of aggregate rentals received by the lessor during the year

Chap 21 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; Sale, importation or lease of passenger or cargo vessels and aircraft, including engine equipment and spare parts thereof for domestic or international transport operations;

Importation of life-saving equipment, safety and rescue equipment and communication and navigational safety equipment, steel plates and other Chap 21 metal plates including marine-grade aluminum plates, used for shipping transport operations; Provided, that the exemption shall be subject to the provisions of Section 4 of Republic Act No. 9295, otherwise known as "The Domestic Shipping Development Act of 2004".
Importation of capital equipment, machinery, spare parts, life-saving and navigational equipment, steel plates and other metal plates including marinegrade aluminum plates to be used in the construction, repair, renovation or alteration of any merchant marine vessel operated or to be operated in the domestic trade. Provided, that the exemption shall be subject to the provisions of Section 19 of Republic Act No. 9295, otherwise known as the "The Domestic Shipping Development Act of 2004".

Importation of fuel, goods and supplies engaged in international shipping or air transport operations; Provided, that the said fuel, goods and supplies Chap 21 shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port, or viceversa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that originated form abroad, or to load passengers and/or cargoes bound for abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other that the mentioned in the paragraph, such portion of fuel, goods and supplies shall be subject to 12% VAT; Services of banks, non-bank financial intermediaries performing quasibanking functions, and other non-bank financial intermediaries, such as money changers and pawnshops, subject to percentage tax under Sections 121 and 122, respectively of the Tax Code; and

Sale or lease Chap 21of 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 One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00). For the purpose of the (1,919,500.00) the husband and the wife shall be considered separate taxpayers. However the aggregate rule for each taxpayer shall apply, for instance, if a professional, aside from the practice of his profession, also derives revenue from other lines of businesss which are otherwise subject to vat, the same shall be combined for the purpose of determining whether the threshold has been exceeded.

The Expanded Senior Citizen Act of 2010

"Expanded Senior Citizens Act of 2010"


On February 15, 2010, Republic Act No. 9994, or the "Expanded Senior Citizens Act of 2010", took effect.
It introduced various amendments to Republic Act No. 7432, as amended by Republic Act No. 9257, otherwise known as the "Expanded Senior Citizens Act of 2003". The new senior citizens law of the Philippines aims to give flesh to the "social justice clause" of the 1987 Philippine Constitution. (See Secs. 10-11, Art. III [state policies]; Sec. 11, Art. XIII [healthcare, social services]; Sec. 4, Art. XV [family, social security]) A senior citizen or elderly refers to any resident citizen of the Philippines at least sixty (60) years old or above; may apply to senior citizen with dual citizenship provided they prove their Filipino citizenship and have at least 6 months residency in the Philippines

What are the previously exempt transactions that are now subject to VAT? 21 services such as dental & veterinary Chap Medical services rendered by professionals; Legal services; Non-food agricultural products; Marine and forest products; Cotton and cotton seeds; Coal and natural gas; Petroleum products;

What are the previously exempt transactions that are now subject to VAT?
Passenger Chap 21 cargo vessels of more than 5,000 tons;

Work of art, literary works, musical composition; Generation, transmission and distribution of electricity including that of electric cooperatives; Sale of residential lot valued at more than P1,500,000.00; Sale of residential house & lot/dwellings valued at more than P2,500,000.00; Lease of residential unit with a monthly rental of more than P10,000;

Compliance Requirements

Who are liable to register as VAT taxpayers?


Any person who, in the course of trade or business, sells, barters or exchanges goods or properties or engages in the sale or exchange of services shall be liable to register if: His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Section 109 (A) to (U), have exceeded One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00): or There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under Section 109 (A) to (U), will exceeded One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00)