Value- Added TAX - complete PDF

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BUSINESS TAX - GENERAL PROVISIONS● Imposed on onerous transfers such as sale, barter, exchange, and importation. ● Without a business pursued in the Philippines, business taxes cannot be applied (except for Importation). ● Must be made in the “ordinary course of trade or business”.ISOLATED TRANSACTI...

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NOTE: If the transaction is exempt from vat and at the same time not in the list of transaction subject to percentage tax (Sec. 116 -127), then the article or transaction is EXEMPT FROM BUSINESS TAXES.

BUSINESS TAX - GENERAL PROVISIONS ● ● ●

Imposed on onerous transfers such as sale, barter, exchange, and importation. Without a business pursued in the Philippines, business taxes cannot be applied (except for Importation). Must be made in the “ordinary course of trade or business”.

ISOLATED TRANSACTIONS: Not considered made in the ordinary course of business or trade, hence, not subject to business tax. EXCEPT, services rendered in the Philippines by a nonresident foreign person shall be considered in the ordinary course of business even if the performance is not regular or isolated. MARGINAL INCOME EARNER ● ● ● ● ●

Business those gross sales/receipts do not exceed 100,000 in any 12 months. Self-employed individual deriving gross sales/receipts not exceeding 100,000. NOT a compensation income from the employer-employee relationship. Principally for subsistence or livelihood. ABSOLUTE RULE: Exempt from Business Taxes.

BUSINESS TAXES 1. Value-added tax 2. Other percentage tax 3. Excise tax NOTE: In the sale of goods or services, generally subject to VAT. If a person is VAT-exempt, it may be subject to OPT. A transaction subjected to either VAT or OPT may still be subjected to Excise Tax (Sin products and Non-essential goods).

VAT REGISTRATION A. Mandatory Registration ● The aggregate amount of actual gross sales/receipts exceed 3,000,000 for the past 12 months OR there are reasons to believe that gross sales/receipts for the next 12 months will exceed the 3M threshold. ● Radio and/or television broadcasting companies: Annual gross receipts of the preceding year exceeds 10M from the end of the taxable year. ● Persons required to register but failed to register. NON-REGISTRATION OF PERSONS REQUIRED TO REGISTER: Shall be liable to pay tax as if VAT registered. BUT, cannot pass to the customer the output VAT and cannot avail of input VAT.

B. Voluntary Registration ● VAT-exempt person or not required to register may elect to be a VAT-registered. Once elected shall not be allowed to cancel for the next 3 years. ● Mixed Transactions: May opt that VAT applies to transactions that would have been exempt.

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Radio and/or television broadcasting companies: Annual gross receipts of the preceding year do not exceed 10M from the end of the taxable year. Once exercised, shall be irrevocable.

NOTE: Application shall be made not later than 10 days before the beginning of the calendar quarter.

CANCELLATION OF REGISTRATION ● ●

In written application, gross sales/receipts for the following 12 months, other than those exempt will not exceed the 3M threshold. Ceased to carry trade/business and does not expect to recommence any trade or business within the next 12 months.

POWER OF CIR TO SUSPEND BUSINESS OPERATIONS ●

Suspension of business not less than 5 days due to failure to issue receipts/invoices, failure to file VAT return, understatement of taxable sales/receipts by 30% or more of the correct taxable sales/receipts, and failure to register as required.

Does the amount include VAT? ● The amount includes VAT if it states: (This amount should be reverted to “Net of VAT” before computing for applicable VAT.) 1. Total VAT invoice 2. Gross of VAT 3. Inclusive of VAT 4. Gross sales ● The amount excludes VAT if it states: 1. Sale/Gross receipts 2. Net of VAT 3. Exclusive of VAT 4. Before VAT ● If the vat is not billed separately in the invoice, the selling price is deemed to be inclusive of VAT. BASIS OF COMPUTING VAT ● Goods: Gross sales (net of sales return and allowances). Use Sales Invoice. ● Services: Gross receipts or Collection. Use Official Receipt. * Include the Excise Tax in Gross sales/receipts if the goods/services are subject to Excise Tax. Sir Tan: Generally all sale, barter, exchange and importation are taxable. Unless, expressly exempted by law.

EXEMPT TRANSACTIONS 1.

NOTE: Exemption is construed strictly agains taxpayer and liberally in favor of the Government.

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: Agricultural and marine food products in "original state". Livestock and poultry are used for producing foods or human consumption and breeding stock and generic materials.

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"Original State" shall mean simple processes of preparation or preservation for the market. Includes: Freezing, Drying, Salting, Broiling, , Smoking or Stripping, and advanced technological means of packaging such as shrink wrapping, vacuum packing, and tetra-pack. o Polished/Husked rice, corn grits, raw cane sugar, molasses, muscovado, and copra shall be considered in their Original State. Livestock or Poultry does not include fighting cocks, racehorses, zoo animals, and other animals generally considered as pets. Only Raw sugar or raw cane sugar are exempt from VAT. It refers to sugar produced without the need for any mechanical devices. E.g Muscovado Sugar. o RAW SUGAR CANE: Undergone simple process of conversion without need of mechanical devices. o Content of sucrose weighs less than 99.5 degrees. Marinated fish, Iodized salt, is not exempt from VAT.

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Fertilizers. Seeds, seedlings, and fingerlings. Fish, prawn, livestock, and poultry seeds. Ingredients used in the manufacturing of finished seeds, whether locally produced or imported. o Except, those used for specialty feeds for animals are considered pets. Take note, however, that there are ingredients for finished feeds that can be used to manufacture food for human consumption. The exemption shall only pertain to ingredients that are unfit for human consumption as certified by FDA. The Bureau of Animal Industry should be the one to classify the said items for tax purposes. of Personal and Household Effects: Belonging to residents of PH returning from abroad and non-resident citizens coming to resettle in PH. Provided, that such goods are also exempt from Custom Duties, such as: o Returned personal and household effects. o Personal and household effects purchased abroad.

of Professional instruments and implement, tools of the trade, occupation, or employment, wearing apparel, domestic animals, and personal and household effects: ● It belongs to a person coming to settle in PH or Filipinos, or their family or descendants who are now residents of other countries referred to as Overseas Filipino. ● For their use, not for sale, barter, or exchange. ● The BOC, upon satisfactory evidence that such persons coming to settle in PH and goods, are brought from their former place, exempt such goods from payment of duties and taxes.

Except, those vehicles, vessels, aircraft, and machinery for subject to taxes, duties, and other charges.

shall be VATABLE

5. Services subject to Percentage Taxes (Sec. 116 - 127)

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6. Services by ● Agricultural Contract Growers and ● Milling of palay to rice, corn to grits, and sugar cane to raw sugar. ●

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"Agricultural Contract Growers" are those persons producing for others' poultry, livestock, or other agricultural and marine products in their original state. Its services include growing poultry, livestock, and other agricultural and marine foods products into marketable food products. "Toll Processing/toll dressing/toll manufacturing" includes weighing, killing, dressing, scalding, cut-ups and packaging are exempt only if it is contracted in packaged services. o Otherwise, if performed independently from growing services shall be subject to VAT.

7. Medical, Dental, Hospital and Veterinary Services, those rendered by Professionals: ● Laboratory services are vat-exempt. If a hospital/clinic operates a pharmacy, the sale of drugs/medicine is subject to VAT. It should be noted that hospital bills constitute medical services or professional fees. ● Rules on Sale of Drugs o To Inpatient, are vat-exempt which is already included in Hospital Bills, that is vat-exempt. o To Outpatient, subject to VAT because they are not part of Hospital Bills. o Inpatient is those that are admitted in the Hospital, while Outpatient those are not admitted in the Hospital. ● Professional Fees of Medical Practitioner o Medical practitioners are not allowed to accept professional fees directly from their admitted patients. o Generally, vat-exempt because it is already included in the Medical Bills of the inpatient/confined which are VAT exempt. o Professional Fees rendered to Outpatient, are generally taxable, hence subject to VAT. As per RR 16-2005: If the annual professional fees of professional practitioners exceed 3,000,000 the same shall be subjected to 12% VAT. Otherwise, 3% OPT under Sec. 116. Generally, what the law wants to subject to VAT are those by professionals. Any services of professionals are performed under an employer-employee relationship, the professional fee is exempt from VAT. PROVIDED, sale/rent of medical equipment in hospitals, clinics, and patients, which include the delivery and installation of specialized medical equipment and devices shall be subject to VAT.

8. Educational Services rendered by: ● Private Educational Institution duly accredited by DepEd, CHED, and TESDA ● Government Educational Institution

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Provided, does not include seminars, in-service training, review classes, and other services rendered by persons not accredited by DepEd, CHED, and TESDA.

The exemption does not extend to other services such as locker rentals, sale of school supplies, canteen rentals, etc.

9. Services rendered by Individual under Employer-Employee Relationship 10. Services rendered by Regional or Area Headquarters (RHQ) ● Regional Headquarters are those established in PH by multinational corporations to act as supervisory, communications, and coordinating centers for their subsidiaries, affiliates, or branches in the Asia-Pacific Region and do not earn/derive income from PH. ● Sale of goods or lease of properties to RHQ shall be subjected to % VAT. (NOTE: RHQ is exempt from Income Tax.) 11. Transactions that are exempt under International Agreement to which PH is a Signatory or under Special Laws, except under PD No. 529 (Petroleum Exploration Concessionaires) 12. ● ●

by Agricultural Cooperatives Duly registered with Cooperative Development Authority. Importation of: o Direct farm inputs, machinery, and equipment, including spare parts to be used directly and exclusively in the production of their own produce. Sales made by Agricultural Cooperatives

Sale of cooperative’s own products to members and non-members Sale of cooperative’s products other than own produce to members Sale of cooperative’s products other than own produce to non-members

Tax Exempt Exempt 12% VAT

It is to be noted that any sales or importation of "Agricultural Foods" in their original state are exempt from VAT - irrespective of seller and buyer. Thus, if the product (own produce or not) of an agricultural cooperative is referring to agricultural food in its original state, the same shall be

13. Gross Receipts from Lending Activities by or Multipurpose Cooperative ● Provided, duly registered with Cooperative Development Authority. Gross Receipts by Credit or Multipurpose Cooperative From Lending Activities to either members or non-members From Non-Lending Activities to either members or non-members

14. VAT

Tax Exempt VAT

by Non-agricultural, non-electric, and non-electric Cooperative K. Despabiladero

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Provided, duly registered with Cooperative Development Authority. Each member’s share capital contribution does not exceed 15,000 regardless of aggregate capital and net surplus ratably distributed to members. Any importation made by a non-agricultural, non-electric, and non-credit cooperative of machinery and equipment, including spare parts to be used exclusively by them are subject to VAT. Note that any gross receipts or sales made by electric cooperative whether to its members or non-members are subject to VAT. Non-agricultural, Non-electric & Non-credit Cooperative

Contribution per member does not exceed 15,000 Contribution per member exceeds 15,000

Tax Exempt 12% VAT

Exemption shall only pertain to the sale of a registered cooperative to members. However, sale to non-members is still exempt if the cooperative has accumulated reserves and undivided net savings of not more than 10M.

15. Export Sales by Non-VAT Registered Person ● General Rule, export sales made by any persons who are non-vat registered are vat-exempt. ● Exception, export sales made by any persons who are vat-registered are subject to % vat rate. Since a non-vat registered is exempt, there is no vat payable/refundable at all. As for vat-registered, any input vat is refundable. 16. Sale of the following: a. Real Property (Capital Asset) is not primarily held for sale to customers or held for lease in the ordinary course of business by real estate dealers. Sale of Real Property General Rule, if held primarily for sale/lease to customers. Not held primarily for sale or lease to customers (Capital Asset). Not held primarily for sale or lease but is used in trade/business shall be treated as an incidental transaction.

Tax 12% VAT Exempt 12% VAT

b. Real Property is utilized for "socialized housing", wherein the price ceiling per unit is 450,000. As defined by RA 7279 “Urban Development and Housing Act of 1992” ● "Low-cost Housing" project intended for homeless low-income family beneficiaries which may be either subdivision or condominium registered and licensed by HLURB, wherein the unit selling price is within the selling price per unit set by Housing and Urban Development Coordinating Council (HUDCC).

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"Socialized Housing" housing programs and projects covering houses and lots, or home lots undertook by the Government intended for underprivileged and homeless citizens.

c. Real Property primarily held for sale to customers or held for lease in the ordinary course of business by real estate dealer if : ● Residential Lot and ● House and Lot, and other residential dwellings Sale of Real Property Commercial Lot, regardless of value Residential Lot ● Selling price ≤ 1,500,000 (previously 1,919,500) ● Selling price > 1,500,000 (previously 1,919,500) House and Lot, and Other Residential Dwellings ● Selling price ≤ 2,000,000* ● selling price exceeds 2,000,000*

Tax 12% VAT Exempt 12% VAT Exempt 12% VAT

* Prior January 1, 2021, threshold is 2,500,000

Sale of Adjacent Residential Lots ● Presumed to be a sale of one residential lot if sold to one and the same buyer, for the purpose of utilizing the lots as one residential lot and the aggregate selling price does not exceed 1,500,000. Otherwise, subject to VAT. ● Although covered by separate title, when sold to one and the same buyer, whether covered by separate or same Deed of Sale, shall be presumed to be a sale of one residential lot. Sale of Parking Lot in the Sale of Condominium Units ● General Rule, the sale of a parking lot in a Condominium is a distinct and separate transaction, hence the sale of the parking lot is subject to VAT - regardless of selling price. Foreclosure Sale of Real Property classified as Ordinary Asset ● General Rule, subject to VAT. Beginning January 1, 2021 - VAT exemption only applies to: ● Sale of real property not primarily held for sale or held for lease in the ordinary course of business. ● Sale of real property utilized for socialized housing. ● Sale of house and lot, and other residential dwellings with a selling price of not more than 2,000,000. Beginning January 1, 2021 - VAT shall be imposed on: ● Sale of real property utilized as low-cost housing. ● Sale of residential lots primarily held for sale regardless of selling price. 17. Lease of Residential Unit ● Threshold prior TRAIN: 12,800 Monthly Rental Lease of Residential Unit

Tax

Monthly rental ≤ 15,000, regardless of annual gross receipts

Exempt

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Monthly rental > 15,000, annual gross receipts ≤ 3,000,000 Monthly rental > 15,000, annual gross receipts > 3,000,000

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Exempt VAT, 3% OPT VAT

Lessor has several residential units for lease. (Treated Separately) o Exempt from VAT those monthly rental does not exceed 15,000, regardless of annual gross receipts. o Subject to VAT when monthly rental exceeds 15,000 and the annual gross receipts exceed 3,000,000 (excluding those units that are vat-exempt). Otherwise, subject to 3% OPT. Lease of Commercial Units o Subject to VAT Provided that the property subject to lease is located in PH, regardless of where the contract of lease was executed. o If the lessor is non-vat registered and the annual gross receipts do not exceed 3,000,000, shall be exempt from VAT but subject to OPT under Sec. 116

“Residential Unit” shall refer to apartments and houses and lots used for residential purposes; units used solely for dwelling including dormitories, rooms, bed spaces, excluding motels, motel rooms, hotel, and hotel rooms. “Unit” shall refer to: 1. Apartment unit for apartment 2. House in case of residential house 3. Per person for dormitories, boarding houses, bed spaces 4. Per rooms in case of room for rent . 18.

of books and any newspaper, magazine, review, or bulletin provided: ● Appears in regular intervals. ● With fixed prices for subscription and sale ● Not devoted principally to the publication of paid advertisement. ● Provided, the exemption only pertains to printed matters in hard copy and does not include does in electronic format.

CREATE PROVISION: ● Removed the requirement of “appears in regular intervals with fixed prices for subscription and sale” to be exempt. ● The exemption now includes . ● Exemption is now expanded into: 1. Books 2. Newspaper 3. Magazine 4. Journal 5. Review Bulletin or 6. Any such educational reading material covered by the UNESCO agreement on the importation of educational, scientific, and cultural materials 19. Transport of (RFC)

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by International Carriers doing Business in the Philippines

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Same shall not be subject to OPT as per RA 10378. Thus, transport of passengers by International Carries (RFC) are exempt from Business Taxes. Transport of cargoes by International Carries doing business in PH are subject to 3% Common Carriers Tax. (Note, only those from PH to any country abroad.)

20. Sale, , or Lease ● Passenger or cargo vessels and aircraft, including engine, equipment, and spare parts for domestic or international transport operations. Provided, the exemption from vat on importation and local purchase is See BIR Ruling 001-2021

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of fuel, good, and supplies by persons engaged in International Shipping or Air transport operations provided: ● Such fuel, goods, and supplies are for the transport of goods and/or passenger from PH port directly to a foreign port without docking or stopping in any port of the PH unless the docking or stopping is for the purpose of unloading passengers and/or cargoes from abroad, or to load passengers and/or cargoes bound for abroad. ● Any portion of fuel, goods, and supplies used for purposes other than for transport of passengers and/or cargoes, the same shall be subject to VAT.

It shall be noted that only importation of fu...