Value Added Tax Notes - It is all about VAT, the information is updated based on TRAIN Law and CREATE PDF

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Summary

Value Added Tax is the tax on the value added by every seller to the purchase price in the sale or lease of goods, property or services in the ordinary course of business as well as importation, whether for personal or business use. VAT EXEMPT SALESA. Sale or importation of agricultural and marine f...

Description

Transfer and Business Tax

Value Added Tax -

is the tax on the value added by every seller to the purchase price in the sale or lease of goods, property or services in the ordinary course of business as well as importation, whether for personal or business use.

VAT EXEMPT SALES A. Sale or importation of agricultural and marine food products in their original state, livestock and poultry of all kind, used as or producing foods for human consumption and breeding stock and genetic materials. Note: (1) Livestock or poultry does not include fighting cocks, race horses, zoo animals and other animals generally considered as pets. (2) Only raw sugar cane is exempt from VAT. Raw sugar cane refers to sugar produced by simple process of conversion of sugar cane without need of any mechanical device. (Refers only to muscovado sugar) B. Sale or importation of: (1) Fertilizers (2) Seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients. whether imported or not, used in the manufacture of finished feeds (XPN: specialty feeds*) *Non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and pets.

C. Importation of personal and household effects belonging to: - The residents of the Philippines returning from abroad - Nonresident citizens coming to resettle in the Philippines Note: Such goods should be exempt from custom duties under the Tariff and Customs Code of the Philippines. D. Importation of professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic animals, and personal and household effects belonging to persons coming to settle in the Philippines or Filipinos or their families who are now residents/citizens of other countries. Notes: (1) For their own use not barter or sale (2) Vehicles, vessels, aircrafts and machineries for use in manufacture shall be subject to duties, taxes and other charges E. Services subject to Percentage Tax Includes but not limited to: (1) Gross receipts of transportation contractors engaged in the transport of passengers by land (2) Gross receipts of international air carriers doing business in the Philippines (3) Gross receipts of Banks and nonbank entities doing business in the Philippines (4) Gross receipts of radio and television broadcasting companies whose annual gross receipts of preceding year does not exceed P10,000,000 (5) Gross receipts of operators of cabarets, night and day clubs

Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia

Transfer and Business Tax

F. (1) (2) -

Services by: Agricultural contract growers Milling for others of: Palay into rice Corn into grits Sugar cane into raw sugar

G. Medical, dental, hospital and veterinary services except those rendered by professionals - Laboratory services exempted. XPN: pharmacy or drugstore, the sale of drugs and medicine. - Sales made by the drugstore to the in-patients included in hospital bills – exempt from VAT - Sales made to the out-patients are taxable. Note: Services of Professional Practitioners are subject to VAT of annual gross professional fees exceed P3,000,000. Otherwise, subject to 3% percentage tax. It includes: -

Medical Practitioners CPAs Insurance Agents (Life and Non-life) Other Professional Practitioners required to pass the government exam.

H. Educational services rendered by private educational institutions, duly accredited by DepEd, the CHED, the TESDA and rendered by government educational insti. I. Services rendered by individuals pursuant to employer-employee relationship

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. (XPN: Those under PD 529 or the Petroleum Exploration Concessionaires under the Petroleum Act of 1949)

-

Examples of Special Laws: PD 1869 – PAGCOR Charter RA 9367 – Biofuels Act RA 10072 – Philippine Red Cross RA 9994 – Expanded Senior Citizens Act of 2010 RA 10754 – Magna Carta for PWDs

L. Sales by agricultural cooperatives duly registered with the Cooperative Development Authority. Table 1.0

To nonmembers

Sale of cooperative’s Exempt own produce (Processed or at its original state) Other than the Exempt VAT* cooperative’s own produce (i.e. from traders) *Exempt if referring to agri. food product at its original state M. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority. Table 1.1

J. Services rendered by Regional or Area Headquarters (RHQs) established in the Philippines (Do

To member s Exempt

From lending activities

From member s Exempt

Fr. nonmembers Exempt

Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia

Transfer and Business Tax

From non-lending activities

VAT

VAT

N. Sales by non-agricultural, nonelectric and non-credit cooperatives duly registered with the CDA Gross Receipts/Sales

Fr. Members Electric Cooperatives VAT Agricultural Cooperatives Table 1.0 Lending Activities by Table 1.1 lending and multipurpose cooperatives Non-agri, non-electric, non-lending/credit cooperatives, if contrib per member: ≤ P 15,000 Exempt ¿ P15,000 VAT

Fr. NonMembers VAT Table 1.0 Table 1.1

Exempt VAT

O. Export Sales by person who are not VAT-registered Export Sales By a non-VAT reg. By a VAT reg.

VAT exempt Vatable @ 0% (zero-rated sales)

P. Sale of: (1) Real property not primary held for sale to customers or held for lease in the ordinary course of business. (2) Real property utilized for low-cost housing and socialized housing defined by RA No. 7279 or the Urban Development and Housing Act of 1992, and other related laws. (Not exempted beg. Jan. 1, 2021) (3) Real property utilized for socialized housing as defined by RA no. 7279 and others, wherein the price ceiling per unit is P450,000 or as may from time to time determined by HUDCC and the NEDA. (4) Residential lot valued at P1,500,000 and below beginning Jan. 1, 2018 (Not exempted beg. Jan. 1, 2021) or house and lot and other residential

Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia

Transfer and Business Tax

dwellings valued at not more than P2,000,000 beg. Jan. 1, 2021. Notes: (1) Sale of parking lot in the sale of condominium units (RR 13-2012) should be subject to VAT regardless of amount of selling price (separate and distinct transaction) (2) Imposition of VAT on foreclosure sales of real property characterized as ordinary asset – In case of nonredemption of properties sold, VAT shall be imposed. Provided: VAT shall be based on whichever is higher of the consideration (bid price of the highest bidder) or the fair market value or the zonal value. Q. Lease of Residential Unit* - monthly rental per unit not exceeding P15,000 regardless of the amount of aggregated rentals received by the lessor during the year. If the aggregate of such rentals of the lessor do not exceed P3,000,000 – exempted but subjected to 3% percentage tax. - In lease of commercial unit, generally subject to VAT regardless of monthly rental. Subject to 3% OPT if lessor is non-VAT registered and annual gross receipts is not more than P3,000,000. *Residential unit shall refer to: -

apartments and houses and lots used for residential purposes buildings or parts or units thereof used solely as dwelling places except motels, hotels and such rooms.

R. Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular interval with fixed prices for subscription and sale and not for the publication of paid advertisements. Note: (1) Under BIR Ruling No. 083-2014, it does not apply to electronic format or versions: e-books, e-journals, electronic copies, online library sources and CDS and software. (2) Other transactions such as printing of brochures, bookbinding, engraving, stereotyping, electrotyping, lithographing of various reference books, trade books, journals and other literary works are subject to VAT. S. Transport of passengers by international carriers doing business in the Philippines. - not subject to Other Percentage Taxes but subject to 3% common carrier’s tax. T. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts for domestic or international transport operations. U. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations V. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries (money changers and pawnshop – subject to percentage tax)

Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia

Transfer and Business Tax

Computation of VAT Payable W. Sale or lease of goods and services to senior citizens and PWDs (RA No. 9994 and RA 10754)

Output VAT (Gross Sales x 12%) Input VAT (Purchases x 12%)

xx (xx)

Advance VAT Payment

X. Transfer of property.

(xx)

Vat Payable (Exc. input VAT) xx Y. Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis by homeowners’ associations and condominium corporations. Z. Sale of Gold to the BSP. AA. Sale or importation of drugs and medicines prescribed for diabetes, high cholesterol and hypertension. (beg. Jan. 1, 2020) -

Cancer, mental illness, tuberculosis and kidney diseases (beg. Jan. 1, 2023)

BB. Sale or lease of goods or properties or the performance of services other than the transactions mentioned, if the gross sales/receipt do not exceed P3,000,000.

Sources of Output VAT -

Actual Sale Transaction Deemed Sales Zero rated Sales

1. Actual Sale (Cash or on account) Basis of the 12% output VAT (1) Sale of goods – gross selling price (2) Sale of services – gross receipts (3) Sale by a dealer in securities – gross income (4) Sale of real properties – the highest amount among selling price, fair value provided by the city/provincial assessor and the zonal value by CIR. Gross Selling Price -

excluding excise tax

VAT

but

includes

Computation: Net of VAT Output VAT = Gross Sales x 12% Gross of VAT Output VAT = Gross Sales/1.12 x 12%

2. Transactions Deemed Sales -

to avoid a situation where a vat registered taxpayer avail of input vat credit without being liable of output vat.

Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia

Transfer and Business Tax

Transactions Deemed Sales: (a) Transfer, use or consumption not in the ordinary course of business of goods or properties ordinarily intended for sale or use in the course of business. - Ex: Buying their own product for free giveaways to their employees or for team building. - Basis: Fair market value of the goods consumed. (b) Distribution or transfer to: - Shareholders or investors as share in the profits of a VAT registered person - Distribution or transfer to creditors in payment of debt or obligation. (c) Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. Note: Goods returned within 60 days are not deemed sale. (d) Retirement from or cessation of status as vat registered person with respect to all “goods on hand”, as of the date of cessation, whether or not the business is continued by new owner or successor. Circumstances: (1) Change of ownership of the business. (2) Dissolution of a partnership and creation of a new partnership.

VAT SHALL NOT BE IMPOSED: 1. Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. 2. Change in the trade or corporate name of the taxpayer. 3. Merger or consolidation of corporations. Unused input tax by dissolved corporation shall be absorbed by the new or surviving corporation. BAYANIHAN TO HEAL AS ONE ACT Donation, when made during the period of state of national emergency (COVID-19) shall be exempt from donor’s tax: (1) Cash donations (2) Donations of all critical or needed healthcare equipment or supplies (3) Relief goods such as food packs and water (4) Use of property whether real or personal (shuttle service, use of lots/buildings) Note: Above mentioned transactions are not deemed sales. Any input vat attributable to such purchase of goods shall be creditable against any other output VAT.

Note: Goods on hand – capital goods, stock in trade and supplies and materials Basis – acquisition cost or market value, whichever is lower.

Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia

Transfer and Business Tax

Zero Rated Sales (0% VAT) Export Sale by a VAT registered entity -

-

taxable transaction for VAT purposes, but shall not result in any output tax. the input tax on purchases shall be available of tax credit or refund in accordance with existing regulations.

The input VAT attributable to zero rated sale may be: a. refunded b. claimed as deduction/tax credit against output vat on domestic sales c. claimed as tax credit (TCC) against any other internal revenue taxes

Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia...