TAX 02 VAT ON Importation PDF

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IMPORTATIONImportation refers to the purchase of goods or services by Philippine resident from non-resident sellers.Types of Consumption Tax on Importation ● VAT on importation – for the import of goods ● Final withholding VAT – for the purchase of services from non-residentsComparison between the C...

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IMPOR IMPORT TATION Importation refers to the purchase of goods or services by Philippine resident from non-resident sellers. Types of Consumption T Tax ax on Importation ● VAT on importation – for the import of goods ● Final withholding VAT – for the purchase of services from non-residents Comparison between the Consumption T Tax ax on Importation VAT on iimportation mportation Object consumption Goods Imposed upon Importers/ buyers Statutory taxpayer Importers / buyers Nature Tax basis Collecting agency Timing of payment

Direct consumption tax Landed cost BOC Before withdrawal of goods

Final withholding V VA AT Services Foreign service providers Resident purchaser of the service* * Indirect business tax Contract price BIR After the month of payment

*Individuals engag engaged ed in business and corporations

The VAT on importation is payable to the Bureau of custom and is paid prior to the withdrawal of the goods from the Customs warehouse. The final withholding VAT is 12% of the contract price for services rendered by non-residents. It is remitted to the BIR. IMPOR IMPORT T GOODS The importation of goods is either: 1. Exempt importation 2. Vatable impo importation rtation EXEMPT IMPOR IMPORT TATION A. Importation of ex exempt empt goods Certain goods considered basic necessities are not su subject bject to the V VA AT on importation importation, such as: 1. Agricultural and marine food products in their original state 2. Fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds including ingredients used in the manufacture of finished feeds 3. Books and any newspaper, magazine, review, or bulletin which appear which is not devoted principally to the publication of paid advertisements 4. Passengers or cargo vessels and aircrafts, including engine, equipment and spare parts thereof for domestic or international transport operations B. Importation by V VA AT-exempt persons 1. International shipping or air transport operators on their import of fuel, goods and supplies 2. Cooperatives of direct farm inputs, machineries and equipment, including spare part thereof, to be used directly and exclusively in the production and or processing of their produce 3. PEZA locators on their import of goods or services

C. Quasi-importation 1. Personal and household effects belonging to residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines 2. Professional instruments and implements, wearing apparel, domestic animals, and personal household effects belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange D. Importation which are ex exempt empt under special laws and international agreement IMPOR IMPORT TATION OF EXEMPT GOODS The importation of the following exempt goods is not subject to VA VAT T: A. Basic human food a and nd related goods 1. Agricultural or marine food products in original state 2. Livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption 3. Breeding stock and genetic materials therefore B. Books, newspapers and magazine C. Pa Passengers ssengers or cargo vessels and air aircrafts, crafts, including eng engine, ine, equipment and spare parts

BASIC HUMAN FOOD AND REL RELA ATED PRODUCTS Agricultur Agricultural al or marine food produ products cts in original state Import exemption is limited to agricultural or marine food products in their original state or those which undergone simple processing. Goods that underwent advanced processing are vatable. Examples of exempt agricultural or marine food products in original state: 1. Grapes, apples, oranges and other fruits 2. Vegetables, tea, ginseng 3. Rice, corn, coffee beans and other edible farm products 4. Marine foods such as fish crustaceans 5. Poultry and livestock 6. Milk, eggs, and meat for human consumption

Livestock includes cow, bulls, calves, pigs, sheep, goats and rabbits. Poultry shall include fowl, ducks, geese and turkey. Marine food shall include fish and crustaceans such as, but not limited to, eels, trout, lobster, shrimps, prawns, oysters, mussels and clams (RR16-2005). To be considered in “original original state” state”,, the goods must be in their raw form. However, those that underwent simple processing are also exempt exempt. Meaning of simple processing The term simple processing includes: a. Acts of preparation for the market b. Acts of preservation, or c. Acts of packing including advanced technological means of packaging

Examples of simple acts of prep preparation: aration:

a. b. c. d. e. f.

Boiling Broiling Husking Roasting Stripping Grinding

Examples of simple acts of preserv preservation: ation: a. Freezing b. Drying c. Smoking d. Salting Packaging is not processing as it does not alter the nature of the products merely involves putting the product in a medium that makes it convenient for handling, storage or marketing. Thus, goods may still be in their original state even if they are packaged using advanced technological means, such as: a. Shrink wrapping in plastics b. Vacuum packing c. Tetra-packing d. Other similar packaging Hence, the following agricultural or marine food products which underwent processing are also exempt: With simple act of prep preparation aration With simple act of preserv preservation ation With acts of packaging Husked rice Sundried fruits Tetra-fresh fruit juice Corn grits Salted meat Shrink wrapped meat Raw cane sugar Smoked fish Roasted beans Dried fish Ordinary salt Frozen meat or fish Ground meat Copra Boiled eggs Lechon

Boiled eggs and Lechon Though boiled eggs and lechon are said be cooked in their ordinary sense, the cooking methods used (i.e. boiling or heating) are simple processing. Hence boiled eggs and lec lechon hon are exempt. Raw Sugar means the natural sugar extracted from sugarcane through simple mechanical process by pressing the juice; boiled to crystallize; filtered using centrifuge to separate these crystals, and dried, resulting to crystallize brown sugar with sucrose content by weight in dye state corresponding to a polarimeter reading of less than 99.50. Degrees and or whose color is 800 ICU or less. Raw sugar includes muscobado (RR8-2015, May 22, 2015)

The importation of the aforementioned agricultural or marine food products in their original state is exempt from VA VAT T.

Processed agricultur agricultural al or marine food prod products ucts Processed agricultural or marine food products pertain to those which have undergone changes in their chemical compositions or have undergone complex processing or treatment or are utilizing advanced technologies in their processing. Examples of vata vatable ble processed agricultural or marine food products: Refined sugar Canned sardines Flour Wine or vinegar Butter Marinated milk fish Vegetable or coconut oil Soy The importation of pr processed ocessed products and those considered not in their original state shall be subject to V VA AT o on n importation. Use or purpose dictates vvatability atability Flowers intended as love gift are vatable since they are not food but cauliflower, of course, ia an exempt human food. Cockfighting chickens are vatable since they are primarily intended for human amusement. They are only food when they lose. However, chicken produced for meat or eggs are VAT-exempt human foods. Farm or fishery inp inputs uts Marine or agricultural inputs intended for the production of marine or agricultural food products which are ultimately intended for human consumption are also VA VAT T-exempt. The importation of farm or fishery inputs such as, seed, seedlings, breeding stocks and genetic materials are exempt. Likewise, foods of these inputs such as fertilizers and feeds including ingredients manufacture of finished feeds are also VAT-exempt. Products intended as maintenance of crops, livestock or poultry and supplemental implements or agricultural or inputs such as pesticides, herbicides, animal medicines, fishing equipment, fishing boats, tractors, plows, driers, threshers and harvesters are vatable. Zoo animal, race horse, aquarium fish, fighting cocks and pets are not intended for human consumption; hence, vatable. Feeds of these non-food animals called “specialty feeds” are likewise vatab vatable. le. Ingredients of feeds for animal food intended for ultimate human consumption is VA VAT T-exempt but ingredients for the processing of human food is vatable. Illustrati Illustration on Simaron Company imported the following agricultural implements: Urea Fertilizer P800,000 Cargil corn seeds 400,000 Pesticides 600,000 Herbicides 800,000 1. How much is exempt? 2. How much is subject to VAT on importation?

Rules on V VA AT taxation of poultry and feeds Livestock Importation of X Importation of feeds for X Importation of feed ingredients for X

Poultry X X X

Pets

NOTE: The importation of ingredient for the processing of foods for human consumption is vatable because processed human foods are vvatable. atable.

Examples of vata vatable ble non-food agricultural or marine products: a. Logs, woods, bamboo, orchid, and similar forest products b. Rubber hem, abaca, tabacco, topical herbs, cotton and other non-food crops c. Shells, corals, and other non-food marine products usually used as ornaments d. Race horse, fighting cocks, aquarium fish, zoo animal, and other animals generally considered as pets BOOKS, NEWSP NEWSPAPERS, APERS, MAGAZINE, REVIEW OR BULLETINS The VAT exemption on the importation of these goods is apparently based upon the necessity of education and information. The Philippines constitution requires the state to give priority to education to foster patriotism and nationalism, accelerate social progress, and promote total human liberation and development. (See Sec, 17 Article II, Philippine Constitution) The Philippine constitution also recognizes the vital role of communication and information in nation building. (See Sec. 24 Ibid.) Conditions for ex exemption emption of newspaper newspaper,, magazine review or bulletin: 1. They must appear at regular intervals with fixed prices for subscription. 2. The sale must not be devoted principally to the publication of paid advertisements. Note that exemption does not extend to other school supplies such as chalk, board markers, pens, notebook, pad paper and office supplies PA PASSENGER SSENGER OR CARGO VES VESSELS SELS AND AIR CRAFTS The VAT exemptions cover the import of passenger or cargo vessels and aircrafts, including engine, equipment and spare parts thereof for domestic or international transport operations. The VAT exemption on the import of these items lapsed under RA 9295 but was reinstated by RA 100378 and was codified under the TRAIN law. This incentive for VAT-exemption is granted by law in an effort to help the modernization of the shipping, transport and tourism industry. To qualify for exemption, the importation must be subjected to the requirements on restriction on vessel importation and mandatory vessel retirement program of the Marina Industry Authority (MARINA): ● Passenger or cargo vessels – 15 years ● Tankers – 10 years ● High speed passenger crafts – 5 years

Illustrati Illustration on Total transportation Group has land, sea and air transport operations. To beef up its operations, it imported 5 units of Daewoo bus, 1 unit of aircraft and 2 cruise ships.

The importation of the airplane and ships are exempt but the importation of the buses for land transport is subject to VAT. Note to readers: In mastering the consumption taxes, legal sensitivities must be considered. It Is an established principle of law, that items not included are deemed excluded. Exempt good must be strictly construed to cover only to those listed by the law as discussed herein. Other basic necessities such as medicines, clothing, processed foods, kitchen supplies, school supplies, and the like are not exempt. A familiarization of the list is imperative. IMPOR IMPORT TATION BY V VA AT E EXEMPT XEMPT PERSONS Vat-exempt persons are not subject to VAT on importation. The extent of their exemption varies per exempt persons. When an exempt importer subsequently sells his exempt importation to a non-exempt person, the non-exempt buyer shall be subject to VAT on importation. The tax due on such importation shall constitute a lien on the goods, superior to all charges or liens, irrespective of the possessor of said goods (Sec. 4.107-1(c), RR16-2005) VAT-ex -exempt empt persons under the NIRC: 1. International shipping or air transport operators 2. Agricultural cooperatives 3. Ecozone-locators International shippin shipping g or air transport oper operators ators The exemption is limited to the importation of fuel, goods and supplies . Although these goods or supplies are physically brought into the Philippines, they are not intended to be consumed herein. They will ultimately be used in international transport. This consumption is a foreign consumption rather than domestic consumption. Agricultur Agricultural al cooperatives The status of agri-coop as VAT-ex -exempt empt person is limited to importation of direct farm inputs, machineries and equipment, iincluding ncluding their spare part (RA 9337) Conditions for ex exemption: emption: 1. The cooperative must be an agricultural cooperative duly registered and in good standing with the Cooperative Development Authorit Authority y (CDA). 2. The importation involves direct farm inputs, machineries, equipment and their spare parts to be used directly and exclusively in the production or processing of their produce. The importation of frozen meat, an exempt good, is an exempt importation for any importer . Hence, the sales by the cooperative to the consumers (i.e., final consumption) shall not be subjected to VAT. Likewise, the buyers shat not be subject to VAT on importation.

Ecozone-locators Ecozone are designed places of economic activity for the production of goods or services for the export market. By legal fiction, economic zones are considered foreign countries and are deemed outside Customs territory. Thus, the importation of goods into the economic zones by locators is exempt not only from VAT on importation but also from customs duties duties. The exemption from VAT covers any good, supplies or machineries brought into the ecozones by locators. Technical importation The rules of VAT on importation apply to technical importation by consumers in a customs territory from persons located in Special Economic Zones (Sec. 4.107-1, RR 16-2005)

Customs territory refers to the portion of the Republic of the Philippines outside of designated special economic zones (Ecozones.) (RR2-2005) “Technical importation” refers to the purchase of non-ecozone Philippines resident from Philippine Ecozone-registered enterprises. By legal fiction, ecozones are considered foreign territories. Hence, the purchase from Economic zones such as but not limited to to,, Subic-Ecozone, Zamboo-Ecozone and Cagay Cagayan-Ecozone an-Ecozone is subject to the V VA AT on importation. Similarly, sales to Ecozones are subjected to zero-rated VAT for VAT taxpayers because Ecozones are considered foreign territories. Likewise, sales to Ecozones are exempt from business tax for non-VAT taxpayers (See Sec. 109(K) and (V), NIRC as amended). QUASI QUASI-IMPOR -IMPOR -IMPORT TATION 1. Import of personal and household effects belong to residents of the Philippines returning from abroad or non-resident citizens coming to resettle in the Philippines. 2. Professional instruments and implements, wearing apparel, domestic animals, and personal household effects belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or ex exchange. change.

Condition for ex exemption: emption: 1. The personal and household effects belong to Philippine residents or non-residents intending to resettle in the Philippines. 2. The goods are exempt from Customs duties. Note that these goods are past consumptions which have been previously subjected to consumption tax herein. The importation of personal or household effects or professional implements by non-residents intending to resettle in the Philippines is a foreign consumption not subject to Philippine consumption tax. Note that when these were purchased previously, they were already subjected to consumption taxes. The VAT on importation applies to importations which represent current consumptions of personal, household or professional effects. It does not apply to their past consumption.

The importation of these donated goods into the Philippines is subject to VAT, except for the rice – a VAT–ex –exempt empt goods. These imported donations are exempt from VAT if made in favor of accredited non-profit organization. Importation of professional instruments and implements, wearing apparel, domestic animal and personal household eff effects ects Conditions for ex exemptions: emptions: 1. The goods belong to persons who come to settle in the Philippines. 2. The goods must accompany the person upon arrival or within 90 days before or after his/her arrival. 3. There must be evidence to show that the change of residence is bona fide. 4. The importation is not a vehicle, machinery or other equipment used in the manufacture or merchandise of any kind in commercial quantity. IMPOR IMPORT TATION EXEMPT UNDER SPECIAL LLAW AW AWS S OR TREA TREATIE TIE TIES S Import that are exempted by special laws, treaties or international agreements to which the Philippine government is a signatory is not subject to the VAT on importation. THE V VA AT ON IMP IMPORT ORT ORTA ATION Other importation of goods is subject to V VA AT regardles regardlesss of whether the the: 1. Importer is engaged or not engaged in trade or business 2. Importer is a VAT or non-VAT business 3. Importation is for business or personal use 4. Non-resident seller is engaged or not engaged in business As a consumption tax, the VAT on importation applies without regard to the purpose of the importation and whether or not the sellers or buyers are engaged in business. Presumption of vvatability atability Importation is generally subject to VAT unless it can be proven as exempt under any of those conditions discussed herein or under a provision of a special law or treaty. The burden of proof in establishing VAT exemption rest upon the importer. Tax basis of the VA VAT T on importation The VAT on importation is computed as 12% of the total landed cost of the importation. Composition of landed cost: A. Dutiable value B. Other in-land costs 1. Custom duty 2. Excise tax, if any 3. Other in-land costs, such as: a. Bank charge b. Brokerage fee c. Arrastre charge d. Wharfage due e. Documentary stamp tax f. Import processing fees

Simply stated , landed costs encompass all costs of importation incurred prior to the withdrawal of the goods from the warehouse of the Bureau of Customs, except unofficial or illegal payment made. The dutiable value, also called transaction value, refer to the total value used by the Bureau of Customs in determining customs duties, such as: 1. Cost of the goods 2. Freight 3. Insurance 4. Other charges and costs to bring goods herein The dutiable value encompasses all costs incurred in bringing the goods up to the Philippine port and prior to any other in-land costs of import. The customs duty is computed as: Dutiable vvalue alue x Exchange rrate ate x Rate of Dut Dutyy IMPOR IMPORT T OF SERVICES The purchase of services from non-residents may be: 1. VAT-exempt 2. Subject to specific percentage tax 3. Subject to final withholding VAT The import of services is generally subject to a final withholding VAT, exempt when it is exempted or imposed with percentage tax. Nature of the Final Withhol Withholding ding VA VAT T In principle, domestic consumption by anybody (business or non-business) of services from abroad should be subject to VAT regardless of the place (with or without) where the service is rendered. However, our current tax law views the final withholding VAT as a business tax. The VAT is deeme...